Woodside Execs Return to Israel in Bit to Sweeten Leviathan Tax Terms

Three of the gas field's current partners also reject Energy Ministry figures that say offshore gas field is smaller than claimed.

File photo: Drilling platform at the Leviathan natural gas field.
Albatross

A week after their dramatic departure from Israel, executives from the Australian natural gas giant Woodside are back in the country to meet with senior officials from Israel’s Tax Authority.

The gas executives returned over the weekend in a bid to discuss their request for tax breaks should they buy 25% of the rights to Israel’s largest gas reserve, Leviathan.

The talks were thought to have advanced yesterday, and the sides are likely to meet again over coming days.

A dispute between the Tax Authority and Woodside became public two months ago, primarily over Woodside’s demand that tax payments be delayed and that the company not pay tax until it recovered its investment in the project. Woodside had wanted accelerated depreciation on its investment, in keeping with benefits permitted to drilling companies under the new Sheshinski Law governing taxation of gas profits.

Under the law, gas reserves can be calculated as depreciating in value by 10% every year for tax purposes. The law also allows companies to postpone receiving that benefit should they choose to, in order not to register a loss in a given year.

But to date Woodside has not participated in the drilling at Leviathan, and therefore is not eligible for any of the benefits – the logic being that these benefits are designed to compensate companies for their risk, but Woodside has not taken any risk.

Instead, Woodside’s investment is supposed to depreciate over the course of 30 years. Woodside is reportedly seeking expedited depreciation in order to decrease its tax burden during its first few years.

Just over a week ago, Woodside had been scheduled to sign a deal giving it a share of Leviathan for $2.7 billion. Woodside’s holding would water down that of the current shareholders: Avner Oil Exploration, Delek Drilling, Noble Energy and Ratio Oil Exploration.

But Woodside CEO Peter Coleman canceled the signing ceremony at the last minute due to dissatisfaction over the terms, apparently particularly the cost of developing the gas reserve in keeping with terms set by the government.

Meanwhile, three of the Leviathan partners denied Sunday that the reserves at the site are smaller than they claimed.

The denial follows a report in Sunday’s TheMarker, which said two consulting firms hired by the Energy and Water Resources Ministry had estimated the recoverable gas reserves at the site to be 5% to 10% below the partnership’s estimate. In the best scenario there are said to be 535 billon cubic meters at the site, and even based on the smaller estimates it still constitutes the largest find off Israel’s coast.

“To the best of the knowledge of the partnership, the [assessment] process has not been completed and, at this stage, not all of the relevant and current information has been taken into consideration,” partners Delek Drilling, Avner Oil Exploration and Ratio Oil Exploration stated in an announcement to the Tel Aviv Stock Exchange yesterday.

TheMarker reported that SGS of the Netherlands and IHS CERA of the United States were hired by the Energy Ministry to check the data the ministry received from natural gas exploration companies. The companies reportedly estimated several months ago that Leviathan contained less gas than Noble Energy had reported.

This would not only reduce the estimated value of the gas at the Leviathan site, but could also result in a reduction of the amount available by the Leviathan partners for export (the Israeli government has capped the amount of gas reserves that can be exported at 40%).

Several meetings were held between these companies, Noble Energy and Noble Energy’s engineering firm, in an attempt to figure out the source of the discrepancy.

However, the lower estimate was never publicized – not even to other government bodies drafting regulation regarding Israel’s natural gas sector.

In response to the report in Sunday’s paper, MK Shelly Yacimovich called on the energy and finance ministries to reveal the new figures.

Moshe Milner