Delek Group Ltd. (TASE: DLEKG) and Noble Energy Inc. (NYSE: NBL) will begin arbitration proceedings with the Israeli government over the Eran license. The license was expropriated from the energy exploration companies more than two and a half years ago and the issue remains in dispute. The problem is that part of the Tamar Southwest field owned by the companies extends into the license. Noble Energy and Delek agreed to the arbitration more than a month ago and today Minister of National Infrastructures, Energy and Water Resources Yuval Steinitz agreed that the arbitration will be conducted by former Supreme Court President Asher Grunis.
Tamar Southwest was discovered at the end of 2013 by the Tamar partners Noble Energy, Delek Group, Isramco Ltd. (Nasdaq: ISRL; TASE: ISRA.L) and Alon Natural Gas Exploration Ltd. (TASE: ALGS) adjacent to the Tamar field itself. Estimates are that the field contains 30 BCM in natural gas similar in size to the Mari B field, which supplied Israel for about 10 years.
The Tamar partners want to merge Tamar Southwest with Tamar by connecting the gas production system. Production at Tamar is currently carried out from five wells and connecting up with a sixth well at Tamar Southwest would increase the stability of Tamar's gas production system and allow it to work with five wells permanently producing and the option of a sixth well for times of peak demand.
However, since the discovery the Ministry of National Infrastructures, Energy and Water Resources has been delaying approval of Tamar Southwest's development because it extends into another license - Eran, which was given to Delek and Noble Energy in 2008.
Until today there has been a dispute over how much gas spills into Eran. The Ministry of National Infrastructures, Energy and Water Resources claims it is about 20-25%, while the gas companies estimate it at less than 10-15%. In any event, in September 2013, the license was expropriated on the grounds that no exploratory drilling had been undertaken in the time allocated.
However, three months after Eran was expropriated the gas companies conducted drilling in Tamar Southwest at a cost of $122 million. This was the drilling that ascertained the field's proven reserves. Concurrently, an appeal was lodged with the Ministry of National Infrastructures, Energy and Water Resources to extend the license's validity. The then Minister of National Infrastructures, Energy and Water Resources Silvan Shalom dismissed the appeal and the gas companies petitioned the High Court of Justice.
The Court heard the appeal one month ago and Justices Esther Hayut, Uzi Vogelman, and Daphne Barak-Erez recommended that the parties go to arbitration.
According to the gas outline agreement approved by the government earlier this month, a team would be set up headed by Accountant General in the Ministry of Finance, which would conduct negotiations with Delek and Noble Energy on their rights to the Tamar Southwest field. In any event, it has been decided that Noble Energy and Delek can sell natural gas from the field worth no more than $575 million.
Even though 10 months have gone by since the Ministry of National Infrastructures, Energy and Water Resources published the first gas agreement no valuation has begun in the negotiation process.
The Ministry of National Infrastructures, Energy and Water Resources said today that one of the intermediary solutions in the arbitration process is the return of the Eran license to the gas companies with the government getting a share of the profits from Tamar Southwest that extend into Eran. The gas companies are not satisfied with such a solution but are prepared to consider a change in the marine borders of the license and Tamar Southwest so that most of Eran would be returned to the government while some of the gas discovered would remain in the possession of the companies.
Published by Globes [online], Israel business news - www.globes-online.com - on May 30, 2016
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