Noble Energy Is Now Awaiting Additional Perks From Netanyahu

Despite High Court ruling, gas deal still seems likely to go through.

Benjamin Netanyahu and Yuval Steinitz, December 8, 2015.
Olivier Fitoussi

When the dust settles over Sunday’s High Court of Justice ruling striking down the regulatory stability clause in the government’s natural gas framework, it will be clear that the plan, which is designed to pave the way for further development of the country’s major offshore gas reserves, is still due to go into effect. That’s because the court did not disqualify the government’s use of a clause in the Antitrust Law, Clause 52, which allows antitrust provisions to be bypassed in favor of the country’s diplomatic and defense needs.

The only “problem” at the moment is that Noble Energy, the Houston-based company that along with Israel’s Delek Group is one of the major players developing the offshore reserves, has made it clear that it still sees the stability clause as indispensable if it is to proceed with Leviathan, the huge gas field off Israel’s coast. The clause promised the company a stable regulatory environment for 10 to 15 years. As a result of Noble’s stance, Prime Minister Benjamin Netanyahu has warned that changes to the gas framework could spell its demise.

In a sense, the ball is in Noble’s court. If it so wishes, it could agree to compromise on the terms of the framework and accept additional government aid to get Leviathan online on time; or if it so wishes, it could bring the crisis to a head over the entire gas framework.

In a statement released following the court ruling, Noble’s chairman, president and CEO David Stover said: “It is now up to the government of Israel to deliver a solution which at least meets the terms of the framework, and to do so quickly.” But the statement did not threaten that Noble would walk away from Leviathan. And Tamar, another, smaller offshore site in which Noble has an interest, is already in production.

The relevant government bureaucrats (at least the ones still on the job) will shortly be dispatched to meet with Noble, offering a package of perks in an effort to satisfy the company in return for changes in the regulatory immunity provisions that the gas framework sought to provide. All of this is in an effort to head off scrapping the framework as a whole.

The court ruled that the stability clause could not simply be passed by the cabinet and instead requires Knesset legislation, but the government is seeking to save the framework agreement without bringing the stability clause to a vote in the Knesset, even at the price of tax benefits and financing in the billions of dollars.

Quite ironically, even though the Leviathan partners cannot meet the terms of the original legislation on the development of Leviathan, Israel’s energy security is at their mercy. That’s thanks to Netanyahu and National Infrastructure, Energy and Water Minister Yuval Steinitz, who together ceded all earmarks of sovereignty in this case.  

The framework only requires the terms of a first milestone to be met in another year, when Noble and Delek will be required to sell their holdings in the smaller Karish-Tanin offshore gas fields. Since Noble has already assigned its rights to sell its stake in those fields to Delek, its next faceoff with Israeli regulators would only come at the end of next year, when it will need to demonstrate its investment in the development of Leviathan. Until that later date, the Israeli government’s hands are purportedly tied, while Noble could take advantage of that to buy more time, in the hope that the global drilling sector will recover and that the company’s cash-flow problems will ease.