Analysis |

Noble's Aggressive Gas Posturing Puts Israel on a Collision Course With Global Energy Giant Chevron

Operator of Israeli gas fields is opposing deputy attorney general's opinion that it must give up veto right over decisions at the Tamar field

Eran Azran
Eran Azran
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The logo of Chevron is seen in Los Angeles, California, United States, April 12, 2016.
The logo of Chevron is seen in Los Angeles, California, United States, April 12, 2016.Credit: REUTERS/Lucy Nicholson/File Photo
Eran Azran
Eran Azran

On the eve of Sukkot last week, Deputy Attorney General Meir Levin received a surprising letter: Noble Energy, which operates the gas extraction operations at the offshore Tamar and Leviathan reserves, stated that it rejected Levin’s legal interpretation that Noble had to give up its veto right to decisions involving Tamar starting in 2022.

Noble, which shortly afterward completed its merger with energy giant Chevron, argued that Levin’s interpretation violates a 2015 agreement with major gas corporations regulating Israel’s natural gas market, saying it intends to take legal action to have it revoked.

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Levin’s decision came with the full backing of other branches of the government. Noble’s aggressive stance means that the state is on a collision course with the multinational energy giant Chevron.

The issue began in September, when, after months of deliberation, Levin published a legal opinion stating that as of 2022, Noble would have to forego its veto right over decisions at the Tamar reserve. Noble is a minority partner in Tamar, but one of the main controlling shareholders in Leviathan. Noble, along with partner company Delek, controls a joint 47% of Tamar, but 85% of Leviathan.

Levin cited the 2015 gas deal, which was designed to break Noble and Delek’s monopoly over Israel’s natural gas market – the companies used to hold an even larger share of Tamar. The deal says Noble’s veto option will be forbidden for all future decisions involving Tamar, including development and gas sales contracts. Levin and the Antitrust Authority have now given Noble 15 months to fix Tamar’s sales contracts to remove any clauses relating to a veto.

Two weeks after Levin published his opinion, the Antitrust Authority sent a letter to Noble stating what action would be taken if Noble didn’t drop its veto claims independently. Should Noble not take action on its own, the Tamar partners would become entitled to make decisions in proportion to their stake in the company – and thus the majority shareholders would override Noble.

Noble’s letter makes a litany of claims against Levin’s legal opinion, stating that it is fundamentally wrong, extreme, illegitimate and constitutes reopening the 2015 agreement. It also claims that Noble does not actually have a veto right involving Tamar, and that the decision turns Noble into a passive partner in the gas reserve, contrary to the intent of the 2015 deal. It adds that because the 2015 deal is a regulatory contract with the state, any interpretation of it needs to be by a court. It also claims that the Antitrust Authority cannot get involved due to a conflict of interest, because it objected to the 2015 deal; the deal was pushed forward by the government despite the trustbuster’s objection in the wake of government claims that it served diplomatic and security interests – developing the offshore gas reserves would enable gas sales to Egypt and Jordan.

Noble’s opposition could lead to a high-powered legal showdown with the State of Israel. The company stated that it intends to take all legal actions to block the implementation of Levin’s decision. The company can petition the High Court of Justice on claims of deprivation of rights, or alternately drag Israel into international arbitration on claims of harm to property rights.

Levin’s letter reflects a unified government position. The various ministries and regulators are standing behind him. A source said that despite Noble’s opposition, they believe Levin’s stance is correct, and the government is preparing for a legal battle.

Noble’s letter came at a particularly sensitive time – right as U.S. energy giant Chevron bought out Noble for $4 billion. The letter was sent Friday, the day that Noble’s shareholders approved Chevron’s acquisition. The deal officially closed several days later.

One big question is Chevron’s stance on the matter: Did it approve the letter to Levin? Noble refused to say on Wednesday.

The letter is a sharp affront to Israel’s government and decision-makers, and comes at a time when Chevron is trying to make a good impact as it enters Israel. It chose to quickly end a conflict Noble started with the Israel Electric Corporation two weeks ago, when Noble decided to halt the entire gas supply from Tamar to the government electricity utility after the majority partners in Tamar agreed to sell the IEC gas at a rate significantly cheaper than that in its original 2012 contract with Tamar. Chevron is currently embarking on a conciliatory media campaign emphasizing the human aspect of its operations.

Chevron is valued at $140 billion – versus Noble’s mere $4 billion prior to the acquisition – and has massive resources accordingly. Any legal conflict with the State of Israel will be drawn-out and challenging.

Chevron stated in response: “As part of the company’s policy we don’t address sensitive commercial and legal issues."

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