Leviathan Partners Push for Better Export Deal

The foreign partners are demanding that Israel change the draft production lease, saying it is too strict for them to attract financing.

The foreign companies involved in developing the Leviathan offshore natural gas field are pressuring Israel to make it easier for them to export gas.

The partners in Leviathan, U.S.-based Noble Energy and Ratio Oil Exploration and Israel’s Ratio Oil Exploration and Avner Oil Exploration, part of businessman Yitzhak Tshuva’s Delek Group, say the draft production lease will not allow them to raise the financing they need to develop the massive field, located off the coast of Israel in the Mediterranean Sea. They say the conditions the government included in the lease will prevent the export of gas, torpedo an anticipated deal to sell gas to Turkey and cause Australia’s Woodside Petroleum to cancel its 25% stake in Leviathan for up to $2.7 billion.

On Tuesday, Noble CEO Charles Davidson met with Harel Locker, the director-general of the Prime Minister’s Office, and Eugene Kandel, the chairman of the National Economic Council. Woodside CEO Peter Coleman is scheduled to arrive in Israel on Wednesday for a two-day visit. The CEOs are not scheduled to meet with Energy and Water Resources Ministry officials.

“Projects of this scale require certainty — certainty of policy and of all the aspects that go along with it. That’s the most important thing,” Davidson told the Eastern Mediterranean Gas Conference in Tel Aviv on Tuesday.

Discovered in 2010, about a year after the Tamar field, Leviathan is the biggest gas-field find of the past decade. It is estimated to hold some 19 trillion cubic feet of gas, enough for Europe for a year. Last month, the partners signed a 20-year, $1.2 billion deal to supply gas to planned a Palestinian power plant once Leviathan starts production in 2016 or 2017. Developing the field is expected to be the largest infrastructure project in Israel’s history, and the partners’ investment in it will likely amount to billions of dollars.

After a lengthy and heated debate, Israel’s government last year agreed to allow 40% of the field’s gas reserves to be exported. The production lease is the final and most important remaining regulatory step and will serve as the basis of the partners' rights to produce and sell the gas for up to 30 years, setting a strict timetable. Once issued by the Petroleum Commissioner in the Energy Ministry, the production lease will replace the partners’ existing exploratory license.

The Leviathan partners are most upset by section of the draft lease that controls the export of gas. The draft lease states that in time of national necessity, the Petroleum Commissioner can limit or halt gas exports and direct the gas to the Israeli economy. The partners claim this clause will make it impossible to finance their plans, as no customer will agree to it.

The Leviathan partners are also challenging the draft lease's requirement that they build large enough facilities, like pipelines and gas-handling centers, to serve smaller fields nearby. They say this will commit them to enormous expenditures that cannot be accurately estimated at this point.

Finally, the partners say it is excessive to ask them to post guarantees of $100 million to cover potential future damages they cause.

Albatross