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    Israel, Cyprus Work on Cross-Border Agreement

Summary

Israel and Cyprus will work towards a unitisation agreement for Aphrodite/Yishai by September this year, according to a joint statement published July 24.

by: Ya'acov Zalel

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Israel, Cyprus Work on Cross-Border Agreement

Israel and Cyprus will work towards a unitisation agreement for Aphrodite/Yishai by September this year, according to a joint statement published July 24.

Israel’s prime minister Benjamin Netanyahu and the president of Cyprus Nicos Anastasiades met in Jerusalem and “discussed the unitisation issue regarding the Aphrodite and Yishai gas fields and concluded that by September 2016 the two energy ministries will seek to finalize these discussions," the joint statement said.

The two leaders also said that solving "the outstanding issues between Cyprus and Turkey would greatly facilitate the pace of the development of future projects which will proceed according to international law as well as greatly enhance stability in the region. Therefore Israel has a strong interest in the resolution of this issue [i.e the Cyprus problem]."

Yishai is controlled by Israeli billionaire Beni Steinmetz through Nammax Oil & Gas Exploration with 63%; Israel Opportunity Energy Resources has 21% holding.

Yishai partnership claims that Aphrodite reserves extend into Yishai in the Israeli exclusive economic zone (EEZ). On the other hand the Aphrodite partnership of Delek Group (30%), Noble Energy (35%) and Anglo-Dutch Shell (35%, since its takeover of BG) claims that no part of the Aphrodite gas discovery is extending into Israel’s EEZ.

Cyprus Israel flag

A possible hint at the Israeli stance could be deduced from a July 6 filing to the Tel Aviv Stock Exchange by Israeli Opportunity, which says that estimates by the energy ministry that Yishai holds up to 10bn m³ are based on surveys by the energy ministry and not by the partnership. The partnership is apparently seeking a much larger portion of Aphrodite reserves than what the government will be willing to concede.

If Israel accepts Cyprus demands, it is possible that the government will face a legal challenge from the Yishai partners, although the government has the final say on a unitisation agreement.

A week ago, Steinmetz withdrew from bidding for the Karish and Tanin gas fields in order to concentrate on Yishai, according to The Marker, a business daily. So far Steinmetz, and his partners have invested $120mn in Yishai.

However it seems that the stance of the Israeli energy ministry is less aggressive, maybe in order to facilitate the agreement, which could hasten the development of Leviathan in conjunction with Aphrodite and also enable laying a subsea pipeline from Leviathan and Aphrodite to Turkey – a strategic goal of the Israeli government which is anxious to move ahead with exports.

Steinmetz gas history

At the end of 2008, during the global financial crisis and just a few weeks before Tamar gas field was discovered at the beginning of 2009, Steinmetz, through his Scorpio company, gave up on his 5% holdings in Tamar gas field as he estimated that the risks were too high. He had to invest $2.2mn to complete Tamar exploration drilling. Following his waiver he was sued for damages by his partner, the geologist Yossi Langotsky, who is regarded as the visionary behind Tamar and Leviathan discoveries. Following an arbitration process, Scorpio was ordered to pay Langotsky NIS 51mn ($13.25mn) damages, trivial compared with Tamar's current value. The decision was confirmed by the Israeli High Court following Steinmetz's appeal.

 

Ya'acov Zalel