Israel's Expected Solution for the Noble-Delek "Cartel"
A meeting between Noble Energy and Delek Drilling’s representatives, and negotiators from the Israeli government is expected this week to discuss a possible resolution of the conflict between Noble Energy and Delek Drilling. The two companies, controlling most of the shares in Israel’s largest fields, the Leviathan (estimated at 21 Tcf) and the Tamar field (estimated at 10 Tcf), were accused of constituting a cartel that could significantly distort competition in the Israeli market.
In December 2014, Israel’s antitrust commissioner David Gilo, announced his decision to break up the cartel, cancelling a previous agreement that would have allowed the companies to retain their stakes in the Leviathan and Tamar on the condition they sold their shares in the smaller Tanin and Karish fields. The announcement triggered fears that production of the Leviathan field would be delayed beyond the expected production date of 2018, that investors would be deterred from future investments in Israel due to the regulatory instability, and that Israel would lose the opportunity to secure regional deals with Jordan and Egypt.
A agreement involving new possibilities is expected to be sealed between the two companies and the Israeli authorities that would involve allowing them to retain their ownership in the Leviathan. Delek would be forced to sell its stakes in the Tamar within six years, and limit its shares to 45% in the Leviathan. Noble Energy would be allowed to retain shares in both fields, however it would be forced to reduce its Tamar stake from 36% to 25% and sell its share in the Karish and Tanin fields.
The new proposal would result in Delek and Noble owning 60% of Israel’s gas reserves instead of the 70% that they currently own. Gilo had offered that the two companies would be left with a 27.5% each, a proposal that was severely rejected by both companies. The new agreement that is expected to be reached between the Israeli authorities and the two companies will likely not receive Gilo’s approval who may decide to contest it before the antitrust court. Ensuring a fair competition in the Israeli gas market may require Gilo's strict approach, but the new proposal is likely to be accepted by the companies and to receive their acceptance to cooperate.
Israel’s string of regulatory and policy debates has created an environment of instability that could be highly detrimental to Israel’s natural gas ambitions. Israel is eyeing regional neighbours undergoing severe energy crisis to sell its gas via pipeline. Regional deals would allow Israel to monetize some of its riches without investing in lucrative infrastructures, given the proximity of the markets it is targeting. Solving ongoing domestic disputes will be crucial for a smooth continuation towards the commercialisation of Israel’s offshore riches.
Karen Ayat is an analyst and Associate Partner at Natural Gas Europe focused on energy geopolitics. Karen is also a co-founder of the Lebanese Oil and Gas Initiative (LOGI). She holds an LLM in Commercial Law from City University London and a Bachelor of Laws from Université Saint Joseph in Beirut. Email Karen karen@minoils.com Follow her on Twitter: @karenayat