State Bills Tamar for Allegedly Dodging Gas Royalties

Delek Group and Noble Energy to pay the state 45 million shekels.

Albatross

The Energy Ministry ordered natural gas giants Delek Group and Noble Energy to pay the state 45 million shekels ($11.8 million) on Wednesday, after discovering that the two companies did not pay the full royalties it owes for mining gas at the Tamar offshore reserve.

An audit by the ministry’s royalties department found that Delek and Noble – which have a majority stake in all of Israel’s natural gas reserves – had conducted interested-party transactions in 2013 and 2014 between the Tamar reserve and the Tethys Sea (Mari B) reserve. Delek and Noble control 67% of Tamar, and 100% of Tethys Sea. The gas sales between the two reserves – ostensibly independent companies – had been conducted at a significant discount from what Tamar charges its other customers.

This raised the ministry auditors’ suspicions that the two gas giants had been attempting to evade royalties.

The Tamar partners stated in response that they were working in full cooperation with Energy Ministry and that they pay royalties in keeping with their obligations.

The auditors demanded explanations from Noble and Delek. Following a hearing process, the auditors concluded that the sales between the two reserves had not reflected the actual value of the gas.

The deal between Tamar and Tethys Sea came about after Mari B’s wells, off the coast of Ashkelon, collapsed, leaving the dwindling Tethys Sea reserve unable to meet obligations. The two companies signed a swap deal, under which Tamar would fulfill Tethys Sea’s obligations and Tethys Sea would supply Tamar with the remaining gas in Mari B in the future.

Ministry auditors believe Tamar sold 1 billion to 2 billion cubic meters of natural gas on behalf of Tethys Sea between May 2013 and May 2014, for $200 million to $400 million. The state should have received $25 million to $50 million in royalties on this sale, not counting additional taxes imposed in the wake of the Sheshinski committee recommendations. Delek and Noble allegedly paid 45 million shekels too little, indicating that the gas was sold at a discount of as much as 50% off the market price.

Tamar paid the state 500 million shekels in royalties between May 2013 and May 2014. Of that sum, 380 million shekels was paid by Delek and Noble.

Tamar’s other shareholders – Isramco (29%) and Alon Gas (4%) – paid the state royalties for the Tethys Sea gas deal as if the sale had taken place at full market value.