Noble Energy Warns It May Quit Israel if Tax Rules Are Revised Again

The U.S. company is concerned about new Finance Minister Yair Lapid's ideas on the state's rights regarding natural resources.

Texas-based Noble Energy will reconsider whether to continue operating in Israel if the government reopens the issue of taxes and royalties over natural resources, said Charles Davidson, CEO of the lead partner in Israel's biggest natural gas fields.

Speaking to reporters Thursday during a visit to Israel, Davidson said his company had accepted the 2010 findings of the government's Sheshinski committee, even though it meant accepting higher tax rates after Noble and its partners had invested billions of dollars in gas exploration and development.

If the government reopens the issue a second time, it will have a chilling effect on investors, Davidson said. He was responding to Finance Minister Yair Lapid's proposal to establish a government committee to reexamine the state’s rights regarding natural resources managed by private companies.

Noble is the lead partner in the Tethys Sea, Tamar and Leviathan fields. Tamar began production two weeks ago, four years after the first gas was discovered at the site, and the company is developing the much bigger Leviathan field with Yitzhak Tshuva's Delek Group and other partners.

Davidson described the flow of gas from the Tamar field as excellent and said the partners there had sped up the start of production to ensure that Israel had a supply of natural gas before peak energy usage in the summer.

Under the tax and royalty regime devised by the Sheshinski panel, the state’s share of net profit from the sale of oil and gas increases from about one-third to between 52% and 62%.The tax on companies starts at 20% and rises gradually to 50%, depending on the profits. Royalties remain at 12.5%.

The Finance Ministry did not provide details on who might be appointed to the new panel and which natural resources would be the subject of the committee’s deliberations.

Davidson, who arrived in Israel to clarify issues with the government concerning gas exports, predicted that Noble would double in size over the next five years.

"Double in size in terms of production, double in size in cash flow, double in size in terms of reserves," Davidson told reporters. He added that economic difficulties in Cyprus had not hurt gas operations on the island, and if anything had accelerated them.

He said Noble had not been engaged in direct discussions with Turkey about gas exports, but that the company had looked at a number of different pipeline options.

Lawson Freeman, who heads Noble's operations in the eastern Mediterranean, said discussions with Israel's neighbors were largely in an "exploratory" phase. "None of them have been to the level of the detailed negotiations obviously that have been within Israel, but all of those have been explored," he said.

Davidson estimated that the newest Israeli field in development, Karish, had around 80 billion cubic meters of gas. He added that gas findings in Israel were far beyond amounts the domestic market would ever need. Exports were thus an important way for Israel to increase its tax income and encourage further exploration and development.

Davidson said he was in Israel to urge the government to accept the recommendations of another panel – the Tzemach committee – on export policy. This would advance development of the Leviathan field. At 476 billion cubic meters, Leviathan's reserves are far greater than Tamar's 283 billion cubic meters.

With reporting by Reuters.

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