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Posted on Sustainabilitank.info on November 23rd, 2010
by Pincas Jawetz (PJ@SustainabiliTank.com)

‘Delek, Noble Energy paid absolutely no royalties or taxes on Tethys Sea gas’ – NIS 737 million in unique tax breaks more than offset the NIS 649 in royalties paid since 2004. (On November 23, 2010 5 Israeli Shekel equal $1.37)
By Avi Bar-Eli
Published HAARETZ  November 8, 2010

www.haaretz.com/themarker/delek-noble-energy-paid-no-royalties-on-tethys-sea-gas-1.323491

The partners in the Tethys Sea offshore natural gas field, Noble
Energy and Yitzhak Tshuva’s Delek Group, essentially paid no royalties
whatsoever to the State of Israel, said a source close to the
Sheshinski Committee, which is discussing Israel’s fiscal policy
regarding natural resources.

The NIS 649 million the companies paid in royalties was more than
offset by the NIS 737 million in tax credits they received since gas
production started in 2004. This means the real value of the royalties
paid to the state was zero, said the source.

Such a tax break is unique to Israel, he added.

All told, Noble and Delek came out NIS 88 million ahead versus the
state – in other words, the taxpayer subsidized the companies by that
amount, instead of receiving royalties or tax payments from the
companies.

The Tethys Sea partnership is currently Israel’s only gas producer.
Delek Drilling and Avner Oil Exploration, also a subsidiary of the
Delek Group, each hold a 26.5% share in the field. American firm Noble
Energy owns the remaining 47%.

The state now grants two tax breaks to oil and natural gas exploration
partnerships. The partners can write off expenses from other projects
against the production field income, and they pay a reduced corporate
tax rate as the gas field gets depleted.

For example, Delek wrote off its investments in developing the Tamar
offshore field against its revenues from Tethys Sea – and paid no tax
at all in 2009. In fact, the Israel Tax Authority recently expanded
the costs that can be written off to include additional expenses, such
as infrastructure and production, for the new fields.

The Sheshinski Committee will mostly likely call for canceling the oil
and gas companies’ tax benefits and instead enact a new progressive
mechanism taxing their profits, though without changing royalties. The
committee is scheduled to present its interim findings this month and
its final conclusions by the end of the year.

———–================————

Noble Energy given go-ahead for Tamar production – Globes
Aug 11, 2010 … Noble Energy Inc. (NYSE: NBL) announced yesterday
that it had obtained Israeli government approval to develop the Tamar
natural gas field, …
www.globes.co.il/serveen/globes/docview.asp?did=1000581117.

———-===============————–

To put above in its correct perspective – the amount of gas discovered in the waters claimed by Israel has today the market value of $300 Billion. The question before the Israeli tax-payers is thus what will they get from this wealth, and how will be used the money the State eventually gets. The newly created Israel Civic Action Forum eyes the Norwegian Sovereign Fund concept that should be allowed to collect the moneys from royalties and taxes, and allow their use only for agreed expenses that aim at education, pensions and the environment. Obviously, in the first place, there is a need to rewrite the tax laws so they get the money that they deserve. Israel, as an independent State has the right to change the insane laws that allowed above accounting manipulation.

The present situation is quite ridiculous, and before the Israelis start worrying about the so called “Dutch Disease” that dealt with the wrong introduction of financial inflows to the economy, they better look at what happened in the “New Zealand Disease” where the State lost its Motunui gas reserves to a consortium made up of Mobil Oil, a subsidiary, and a local factor. There the problem was the use of an unneeded technology that turned the natural gas into methanol and synthetic gasoline. The payment for the use of that technology turned the whole process into a money losing proposition so that in order to get rid of this mistake from the government books – eventually New Zealand gave away the gas.

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