ISRAEL'S GAS DEVELOPMENT: LEGAL CONSIDERATIONS AND CORPORATE SOCIAL RESPONSIBILITY IN A NEW FRONTIER PROJECT--AN ISRAELI COUNSEL PERSPECTIVE

• Jurisdiction: Derecho Internacional

International Mining and Oil & Gas Law, Development, and Investment
(Apr 2011)
CHAPTER 20B
ISRAEL'S GAS DEVELOPMENT: LEGAL CONSIDERATIONS AND CORPORATE SOCIAL RESPONSIBILITY IN A NEW FRONTIER PROJECT--AN ISRAELI COUNSEL PERSPECTIVE
Dan B. Hacohen
Rosenberg, Hacohen, Goddard & Ephrat - Law Office
Tel Aviv, Israel

DAN HACOHEN is a senior partner at Rosenberg Hacohen Goddard & Ephrat, and heads its energy practice. Mr. Hacohen joined Rosenberg Hacohen Goddard & Ephrat in 1987 and since then has been involved in most of the major oil and gas projects in Israel including the Yam Tethys project that discovered the Noa and Mari-B gas reservoirs offshore southern Israel, the Tamar project that in 2009 discovered the Tamar and Dalit reservoirs in deep water off-shore northern Israel and the Leviathan project that in 2011 discovered the Leviathan field off-shore northern Israel. Mr. Hacohen has been involved in all aspects of these projects, including the initial farm-in agreements, joint operating agreements, acquisition agreements, the negotiations with the government, gas sale agreements, project financing and many other related agreements. Mr. Hacohen has also been involved in oil and gas projects in Southeast Asia, Africa and the US and has advised the Government of Israel in the privatization of four government owned E&P companies. Mr. Hacohen earned his LLB degree from the Hebrew University in 1986. Mr. Hacohen is the Co-Chairman of the Energy Committee of the Israeli Bar Association and a member of the Association of International Petroleum Negotiators (AIPN).

CHAPTER 2

An Israeli Counsel Perspective

Dan B. Hacohen

Rosenberg Hacohen Goddard & Ephrat

Tel-Aviv, Israel

SYNOPSIS

§ 2.01. Introduction.

§ 2.02. The Legal Framework.

§ 2.03. The Petroleum Law.

[1] General.

[2] Petroleum Rights.

[a] Preliminary Permit.

[b] Petroleum License.

[c] Petroleum Lease.

[3] Off-Shore Activities.

[4] Applying for a Petroleum Right.

[5] The Petroleum Registry; Transfer and Pledging of Interests.

[6] Priority for Domestic Consumption; Export.

[7] Decommissioning; Bonds.

[8] Government Participation.

[9] The Fiscal System.

§ 2.04. The Gas Law.

[1] General.

[2] The Gas Supply Chain.

[a] Gas Suppliers.

[b] High Pressure Transmission System.

[c] Low Pressure Regional Distribution Networks.

[d] Marketing Companies.

§ 2.05. Provision of Services to Others: Open Access.

§ 2.06. LNG.

§ 2.07. Storage.

§ 2.08. Anti-Trust.

§ 2.09. Land Rights for the Building of Facilities.

§ 2.10. Additional Laws and Regulations.

[1] Permitting.

[2] Exclusive Economic Zone.

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§ 2.01. Introduction.

Israel's oil and natural gas sector has undergone huge changes in the last ten years. From a country with virtually no oil and gas reserves, Israel currently has gas reserves estimated at over 25 TCF.¹ The gas discoveries in 1999-2000 and the commencement of importation of natural gas from Egypt through a new pipeline in 2008, are transforming the Israeli energy scene. Consumption of natural gas in Israel began in 2004 and by 2010 approximately close to 40% of the electricity generated in Israel was derived from natural gas.² Consumption of natural gas in Israel has grown from 42 BCF³ in 2004 to approximately 150 BCF in 2010. The forecasts of the Israeli Ministry of National Infrastructures expect gas consumption in Israel to more than double in the next five years reaching 315 BCF in 2015.

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Israel's gas reserves are concentrated in three main fields off-shore Israel. The Mari field situated 15 miles offshore southern Israel was discovered in February 2000 by an American- Israeli consortium.⁴ The Mari field began supplying natural gas to the Israeli market in early 2004 and by the end of 2010 it delivered approximately 600 BCF of natural gas. In January 2009 the huge Tamar field was discovered 50 miles offshore northern Israel and the Dalit discovery followed soon thereafter. The Tamar and Dalit fields have 2C⁵ reserves estimated at approximately 8.8 TCF and are expected to begin supplying natural gas to the Israel market in 2013. In late 2010 the Leviathan discovery was made and appears to be one of world's largest single offshore natural gas discovery since 2000. The Leviathan exploration well and associated tests completed in December 2010 indicate that the field contains estimated natural gas resources available for production (gross mean resources) of approximately 16 TCF. The Leviathan discovery, when developed, is likely to be directed to exports as it is estimated that the Tamar reserves will supply all the needs of the Israeli domestic market for the next couple of decades. These new discoveries have triggered a huge interest in exploration activities in the Israeli offshore and the neighboring regions. In a recent assessment made by the US Geological Survey it was estimated that the Levant Basin Province may contain 122 TCF (mean estimate) of undiscovered,

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technically recoverable natural gas and 1.7 billion barrels of undiscovered, technically recoverable oil.⁶

In 2008, Israel began importing natural gas from Egypt, giving the Israeli market access to the significant gas reserves offshore Egypt. Sales are made by a private company that has been granted by the Egyptian authorities, the exclusive right to export gas from Egypt to Israel. In 2010 imports from Egypt constituted approximately 30% of gas consumption in Israel and were made mainly to the Israeli Electric Corporation. The recent political unrest in Egypt, has given rise to concerns in Israel as to the reliability of the long term supply from Egypt. In February 2011 terrorists attacked the pipeline delivering gas from Egypt to Jordan and Israel causing damage to the pipeline and the gas supply was suspended for over a month for repairs.

Israel does not currently export natural gas, nor are there any LNG or gas storage facilities; however this may change in the future if additional reserves are discovered.

§ 2.02. The Legal Framework.

Pursuant to Israeli Law, mineral resources belong to the Country, whether or not located on Country owned lands. The principal legislation in Israel in relation to the oil and gas sector is the Petroleum Law 5712-1952 (the "Petroleum Law")

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that was enacted in 1952 and the Natural Gas Sector Law, 5762-2002 (the "Gas Law") that was enacted in 2002.

§ 2.03. The Petroleum Law.

[1] General.

The Petroleum Law sets out the legal and regulatory framework for the exploration and production of Petroleum⁷ (including oil and natural gas) in Israel. Under the Petroleum Law, the Minister of National Infrastructures was conferred with the power to implement the Petroleum Law. The Minister appoints a Petroleum Commissioner as the person in charge of petroleum affairs having the powers specified in the Petroleum Law.⁸ In addition, an advisory council was appointed (the Petroleum Council) to advise the Minister and the Petroleum Commissioner on certain matters brought before it in accordance with the Petroleum Law.⁹ The Minister may, after consultation with the Petroleum Council, prescribe the policy for Petroleum exploration and the minimum monetary investment required for the receipt of an exploration license.¹⁰ In addition, the Minister may, after consultation with the Petroleum Council, declare

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any area within the State of Israel to be open, or closed, for Petroleum exploration and production.¹¹

The Petroleum Law empowers the Petroleum Commissioner to grant rights to explore, develop and produce Petroleum. No person is allowed to explore for, or produce, natural gas without receiving the required permits and licenses in accordance with the Petroleum Law.¹²

[2] Petroleum Rights.

The Petroleum Law defines three types of rights for the different stages of exploration and production of Petroleum, as follows:

[a] Preliminary Permit.

A Preliminary Permit enables its holder to conduct preliminary investigations to ascertain the prospects for discovering Petroleum in the area covered by the permit. Exploration drilling is not allowed under the Preliminary Permit and requires a Petroleum License. The recipient of a Preliminary Permit is entitled to request a priority right on the permit area, which, if granted by the Minister, provides the holder of the Preliminary Permit with priority in receiving a Petroleum License in relation to areas covered by such Preliminary Permit.¹³ There are no statutory limitations as to maximum size of the permit area, however the policy is to limit the Preliminary Permits to an area for which the applicant

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has a reasonable plan of operation and has the necessary financial resources to execute the plan. A Preliminary Permit with priority rights is granted for a term not exceeding 18 months and is subject to the completion of a predetermined work program (typically interpretation of existing data and acquisition of new seismic data). The holder of a Preliminary Permit with priority right is...