Israeli Gas Row Could Require Arbitration

U.S.-Israeli group controls Tamar and Leviathan fields; antitrust authority says the group may be a monopoly.

The group that controls two large gas fields off Israel's shores could seek international arbitration to defend its assets, it said on Wednesday, a day after an Israeli regulator raised the prospect of it being stripped of some of its holdings.

The U.S.-Israeli consortium said it had been blindsided by the announcement from Israel's antitrust regulator that it might be deemed a monopoly over its control of the newfound Leviathan and Tamar gas fields.

Gideon Tadmor, chairman of Delek Drilling and CEO of Avner Oil, said the consortium -- which also includes U.S. group Noble Energy (NBL) -- had not made any decisions, but that international arbitration was an option.

"I don't want to minimise the significance of what happened," he told a conference call with analysts and investors.

Delek Drilling and Avner Oil are part of conglomerate Delek Group and together hold large stakes in both fields.

The discovery of the fields in the eastern Mediterranean was the most significant economic story in Israel in recent years, turning the import-dependent country into a potential energy exporter.

Tamar, with 10 trillion cubic feet of reserves, went online last year and can meet Israel's natural gas needs for decades. Leviathan, more than twice as big, was set to begin production in 2018 and much of it is earmarked for exports.

The antitrust authority, an independent regulator of market competition, will next hold a hearing with the companies and it could be weeks before it makes a final decision.

Tadmor said he hoped a solution could be reached.

Underscoring the importance of the matter, Israeli Prime Minister Benjamin Netanyahu instructed his top economic adviser to oversee efforts to find a compromise, which analysts say may have already stained Israel's reputation with foreign investors.

The idea is to find a balance that will allow timely production of natural gas while supplying it to the public at competitive prices, a source in Netanyahu's office said.

The drama began on Sunday when executives from Delek and Noble Energy, the operator for both fields, were summoned for a surprise meeting with antitrust commissioner David Gilo.

Gilo had previously agreed Noble and Delek could control the fields as long as they sold two smaller, recently discovered ones. But in recent months, Gilo said, it became clear that arrangement was not sufficient and he might have to declare the companies a monopoly.

The Noble executives took a hard line and told Gilo they would not accept the decision, Tadmor said.

"They said unequivocally this is a change in agreements, a serious blow regarding certainty -- we will not accept it, and we are weighing all options at our disposal, including those unique to Noble, international arbitration," he said.

In a separate statement, Noble said the issue needed to be resolved before it invested any more money in Israel.

"This is a matter that we believed was resolved some time ago and follows on recent assurances from the anti-trust authority that approval was forthcoming. We believe this is a harmful precedent for Israel to set and we will vigorously defend our rights relating to our assets," Chairman Charles Davidson said.

Shares in Israeli natural gas companies have taken a hit, and UBS analysts said they were putting their stock ratings under review until things become clear.

If forced to choose between its assets, the consortium would probably sell Tamar, UBS analyst Roni Biron said.

"We do not see a forced sale of Leviathan as a likely scenario given the geopolitical importance of pending regional agreements and the need for a second source of gas into Israel," he said.

Asked whether the regulator's announcement would hurt negotiations underway to sell gas to a BG Group (BRGXF) facility in Egypt or Jordan's electric company, Tadmor said: "It is too soon to determine the impact and consequences."

By Ari Rabinovitch