Delek Offers Israeli Government a Deal Over Leviathan Gas Field

Tshuva's firm proposes divesting smaller holdings in bid to reach settlement with antitrust authorities.

As the Antitrust Commission pursues its restraint of trade case against the partnership developing the Leviathan offshore natural gas exploration site, TheMarker has learned that the Delek Group, the largest partner in the venture, has offered to settle the case by committing for itself and its other major partner, Noble Energy, to forgo the right to develop smaller offshore drilling sites other than the Tamar site and to sell the gas from Leviathan for export only.

A formal finding by the Antitrust Commission that the Leviathan partnership is in restraint of trade would require the Delek and Noble either to sell their interests or market the natural gas separately. The Tzemach Committee, which made recommendations on natural gas export policy, reported that Delek and Noble have a combined 79% share of Israel's proven natural gas reserves.

The proposed settlement is an effort to dispel concerns that Delek and Noble would control the Israeli natural gas market.

The Delek Group, controlled by Yitzhak Tshuva, has a 45% stake in Leviathan, which is in Israel's economic waters and constitutes the largest natural gas reserve in the eastern Mediterranean. Tshuva's firm, which is in partnership with U.S.-based Noble Energy (40% ) and Ratio Oil Exploration (15% ), is proposing that in exchange for the commission's consent to the continued operation of the Leviathan partnership, Delek and Noble would sell their rights to other smaller sites off the Israeli coast - Dalit, Tanin and Dolphin - as well as to another potential site, Karish.

By offering to divest their interest in the smaller exploration sites, Delek and Noble would also contend that they are paving the way for the entry of an independent player in the local market.

At this stage, it is not clear what the Antitrust Commission's reaction will be to the Delek settlement proposal and whether such a settlement arrangement is legally feasible. Two other settlement options are also on the table. The commission and Delek and Noble declined to comment for this report.

The current proceedings follow a finding in September of last year by Antitrust Commissioner David Gilo that the Leviathan partnership was operating in restraint of trade, and would in turn curb competition in the local natural gas market. The partners were summoned to hearings at which they sought to head off a formal declaration by Gilo to that effect. The hearings ended in May and since then no declaration has been issued, nor is one expected in the coming weeks, apparently due to pressure from the partnership.

The Leviathan field, which has confirmed reserves of 476 billion cubic meters of natural gas, was recently valued at $5 billion. Noble Energy, which is conducting the drilling operations at the site, also says there is a 25% probability of finding up to 1.4 billion barrels of oil there. A deal is pending to sell a 30% stake in the Leviathan project to Australia's Woodside Petroleum, which would reduce Delek and Noble's collective share in the venture to 60%.

The sites that the partners would be giving up are much smaller in scale. The natural gas at Tanin and Dolphin, in which the pair together have 100% ownership, is estimated at a combined 19 billion cubic meters.

Dalit, in which the two firms collectively have a 67% stake, has just 7.5 billion cubic meters of gas. Drilling at the Karish site, which Delek and Noble own together, has not yet been explored, but the two license holders project that it contains another 70 billion cubic meters of natural gas.

David Bachar