Noble Energy Inc. (NBL:US)’s Chief Executive Officer Charles Davidson would reconsider the U.S. company’s investments in Israel if the government raises the issue of tax rates on natural resources.
Houston, Texas-based Noble and Israeli gas exploration companies have discovered enough gas under the Mediterranean Sea over the past three years to supply the country’s needs for 150 years, giving Israel the opportunity to become a gas exporter.
Tax and royalty rates on natural gas and oil production were reset by a panel in 2010 following the discoveries. New Israeli Finance Minister Yair Lapid said yesterday he would reconsider how natural resource developers are taxed, after opposing the sale of Israel Chemicals Ltd. (ICL), which mines Dead Sea minerals, to Potash Corp. of Saskatchewan Inc.
Davidson, who is also the chairman of Noble, said he has not received any indication that the tax issue would be reopened. “We continue to invest because I believe the matter is closed,” he said at a press conference today at the company offices in Herzliya Pituach, Israel. “If it were to be reopened we would have to reconsider everything we are doing.”
Davison said the tax and royalties rates were reset after Noble had already made $1 billion investment in the Tamar field. “If a government makes a practice of retroactively applying taxes after risk investments are made, at some point you scare off any future investment,” he said.
The public panel on natural resources proposed by Lapid will not reopen natural gas policy, Lapid’s spokeswoman said in a text message today after Davidson’s comments.
Natural gas discoveries off the coast of Israel are forecast to meet the country’s demand for the next 20 years and enable Israel to become a gas exporter, according to the Finance Ministry. The Tamar field, estimated to hold 10 trillion cubic feet of natural gas, started producing natural gas on March 30.
The supply of the fuel to Israeli companies may save the country about 1 billion shekels ($276 million) a month in energy costs and contribute about 1 percent to the country’s gross domestic product, according to data provided by Israel’s Ministry of Energy and Water Resources and the Bank of Israel. The larger Leviathan field is estimated to hold 18 trillion cubic feet of gas.
Davidson said he has urged the Israeli government to pass a comittee’s recommendation on exports as soon as possible. “Before we can move forward with exports, we need an appropriate export policy from the State of Israel,” he said. At a meeting with Prime Minister Benjamin Netanyahu and other officials yesterday, he said that “they recognize that a decision has to be made.”
Netanyahu’s new government will need to decide on Israel’s policy for natural gas exports. A committee headed by former Ministry of Energy and Water Resources Director-General Shaul Tzemach, which examined the question of gas exports, recommended in August that Israel allow as much as 500 billion cubic meters (18 trillion cubic feet) of natural gas to be exported. The amount of exports Israel should allow has been called into question by public figures, including opposition Labor party leader Shelly Yachimovich, especially in light of the fact that the Myra and Sara wells were found to be dry holes since the publication of the committee’s report.
The committee recommendations are adequate to support the further development of Leviathan, Davidson said. “If the Tzemach recommendations come into discussion that may put Leviathan at risk.”
Noble discovered the Leviathan field in Israel’s deep waters in 2010, when it was the world’s largest find of its kind in a decade. Woodside Petroleum Ltd. (WPL), Australia’s second-largest oil and gas producer, agreed to pay as much as $2.3 billion for 30 percent of Leviathan from the partners. Part of the deal is subject to Israel finalizing natural gas export rules.
Davidson said Noble is evaluating a number of export avenues for Israeli natural gas, including a floating LNG plant and an onshore LNG plant. He said the cost of the project will depend on its location and size but estimated the minimum cost to be $5 billion.
He said he expects Noble to double in size over the next five years in terms of production, cash flow and reserves.
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