Noble’s Leverage Limited in Israeli Gas Deal, Says Expert

It’s too early to say whether Israel would be exposed to a lawsuit, and it’s also not clear Noble would be protected.

Off Haifa coast, oil rig at enormous Leviathan natural gas field.
Albatross

It’s far from given that Noble Energy could drag Israel into international arbitration should Israel change its regulation governing the natural gas industry, says an expert in the field.

Part of the argument in favor of Prime Minister Benjamin Netanyahu’s plan to develop Israel’s natural gas reserves is that the U.S.-based company, which has a monopoly over Israel’s natural gas reserves in partnership with Israel’s Delek group, could sue Israel for damages in an international arbitration process should Israel harm the company’s terms. That plan includes a controversial clause promising to protect the monopoly controlling Israel’s gas fields, U.S.-based Noble Energy and Israel’s Delek Group, from regulatory changes for 10 to 15 years.

That threat supposedly exists independent of whether the gas plan is approved. It was recently publicized that Noble Energy secretly transferred its holdings in Israel’s gas fields to a subsidiary in Cyprus via a company registered in the Cayman Islands in order to give it access to international arbitration. By listing in Cyprus, Noble Energy ostensibly can make use of the 1998 bilateral agreement between Israel and Cyprus to sue via the International Center for Settlement of Investment Disputes over direct or indirect damages to its interests.

However, attorney Dr. Daphna Kapeliuk, a partner at the Goldfarb Seligman Law Offices specializing in commercial and international litigation, says it is far from clear-cut.

“When Israel signed the agreement 17 years ago, the intent was to protect the investments of Israeli entrepreneurs in Cyprus. No one thought about the opposite scenario. But things have changed. While we’re still thinking about tax planning, major companies are thinking about investment planning,” she says.

It’s too early to say whether Israel would be exposed to a lawsuit, and it’s also not clear Noble would be protected, she says. “If Noble seeks to exercise the treaty and to sue, then Israel’s first response would to be to state that the agreement does not grant the arbitrator authority to hear the case,” notes Kapeliuk. “Israel would argue that Noble is not considered an investor, and would argue that in this case, the investor is not Noble’s Cypriot subsidiary.”

Furthermore, Israel could argue that Noble’s relocation to Cyprus was not conducted in good faith, and that Jerusalem had not been informed of the move. Israel’s Energy Ministry has indeed stated repeatedly over the past several months that it had no idea that Noble was registering its activities in Cyprus.

However, not informing the state of its move is not enough. Israel would have to prove that Noble was required to inform of its move, and it would have to take a close look at the licenses under which Noble has rights to Israel’s Leviathan and Tamar gas fields, she noted. Israel’s Oil and Gas Law states that licenses are individual and cannot be transferred or used as collateral without the ministry’s permission.

The license to the Leviathan reserve was issued to Noble Mediterranean, the company’s operating arm in Israel. The transfer of the holdings to the Cypriot subsidiary was conducted by the parent company, international Noble Energy, which fully owns Noble Mediterranean.