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conduct test or development drilling in the license area; and to produce petroleum.
Once the Commissioner recognizes that a discovery has been made, the licensee may
be granted a lease for 30 years which can be extended to 50 years.
The Petroleum Law establishes that a leaseholder is allowed in principle to export
petroleum. In 2013, pursuant to the recommendation of the “Zemach Committee,”
the Israeli Government adopted a resolution which limits natural gas exports to
approximately 40% of production (with the exception of reservoirs in existence prior
to the adoption of this policy, which may export up to 50% of production).
There are two key components of taxation relevant to the oil and gas industry. The
first component relates to the royalties that a holder of a lease must pay to the Israeli
Government in an amount equal to 12.5% of the wellhead value of the petroleum
produced from the leased area. The second component, introduced following the
recommendations of the “Sheshinski Committee,” is a levy imposed on profits derived
from the sale of petroleum pursuant to the Petroleum Profit Taxation Law, 5771-
2011. The levy applies only to profits from upstream operations and is designed to
capitalize on the economic dividend arising from each petroleum reservoir only after
the holder of a lease achieves a full return on its investment plus an additional return
for some of the financial risks.
The current energy mix and future developments
Natural gas is expected to play a considerable role in Israel’s future energy mix and
recent discoveries have already significantly reduced the use of coal as the main
source of Israeli electric power. Israel does not produce nuclear energy and currently
less than 5% of the energy mix is derived from renewable sources.
The Draft still requires the approval of the Israeli parliament unless the Minister of
the Economy decides to use his authority pursuant to the Restrictive Trade Practices
Law, 5748-1988 and exempt the Draft from antitrust constraints. The Draft is the
outcome of a recent dispute between the Director-General of the Antitrust Authority
(the “Director-General”) and the partners in the Leviathan and Tamar fields. The
Director-General has reconsidered the applicability of a previous arrangement that
would have allowed the partners to retain their stakes in the fields as long as they sold
their shares in the Karish and Tanin fields.
Therefore, we identify several capital investment and acquisition opportunities. First,
following the approval of the Draft, the partners in the Leviathan and Tamar fields will
be required to sell their stakes in the Karish and Tanin fields. Second, in order to access
distant markets Israel will need to facilitate the construction of a liquid natural gas
(“LNG”) facility.Other than development,construction andoperation of an LNG facility,
the local market will require: additional gas-supporting and export infrastructure;
companies with the expertise to convert existing power plants to natural-gas
compatible or build new power plants; companies with expertise in pollution controls;
and other services which relate to the industrial application of natural gas. In the long
run, investment opportunities may relate to the development of a methanol plant or to
companies capable of introducing natural gas vehicles. In addition, several gas-related
PPP projects have already been published such as a tender for the construction of a
large scale ammonia production plant in the Negev region.
The most recent regulatory hurdle facing the energy market is the approval of
the draft “gas outline agreement” recently published by the Israeli Government
(the "Draft").