In the wake of "Globes" revelation that Egyptian natural gas supplier East Mediterranean Gas Company (EMG) was given a full and extraordinary 20-year tax exemption from the Israeli government, the gas and oil exploration companies operating offshore from the Mediterranean today are feeling discriminated against.

Not only are they compelled to pay royalties on the gas they have discovered, but the Israeli government has set up the Sheshinski Committee to examine the royalties paid by the gas exploration companies that have discovered Israel's gas fields. "Globes" has received copies of an exchange of letters between Noble Energy Inc. (NYSE: NBL) CEO Chuck Davidson, who is in Israel this week, and Minister of Finance Yuval Steinitz. Davidson sent his letter in April and did not receive a reply until nearly two months later.

On April 14 Davidson wrote to Steinitz, "I was alarmed to learn yesterday of your press release announcing the creation of a committee to review "Israel's fiscal policy on energy resources." From Noble's perspective, it would be highly detrimental to create immediate uncertainty and then potentially degrade the fiscal environment for hydrocarbon investments, while the petroleum industry in Israel is relatively fragile and in its very infancy. Huge investments that carry great risk have yet to be made that hopefully will prove that a larger petroleum system exists. Without those high risk investments, which will certainly be tempered with the threat of higher taxes, future energy independence for Israel is just a matter of hope and speculation by the media."

"Consistent with our previous conversation, I want to confirm the Ministry's intent is for existing licenses and leases to remain untouched, and as public statements regarding taxation tend to alarm and deter investors, I would ask for your acknowledgement of this understanding, which is essential for our future investment plans. Any retroactive changes in the terms of the existing permits would be an egregious taking by the government, which would quickly move Israel to the lowest tier of countries for investment by the energy industry."

He concluded, "I urge you to take these serious concerns into account as you deliberate the path forward. As always, I am available to answer any questions you may have."

Steinitz did not deign to answer until June 2 in a letter strewn with errors in basic English. The Minister of Finance wrote (the errors have been retained here)," As clarified in our meeting a couple of months ago, I decided to carefully examine the government's fiscal policy regarding oil and gas exploration in Israel, and hence to establish the prof. Chishinsky committee."

"In the press release that accompanied the committee establishment, it was mentioned that I expect the discussion to focus on gas and oil reservoirs that will be revealed after the date (12.4.2010) of the committee."

"Of course, the professional committee with its academic character and prestige is entitled to investigate and give its insights to the extent it finds suitable, as is customary with distinguished committees of the sort."

The mandate of the committee is to submit its recommendations and not to make any decisions. I assume that your company might be invited to present its standpoint and reservations on this issue in the committee's forum to the extent the committee will find appropriate."

A cc at the bottom spelt the name of Prof. Eytan Sheshinski correctly.

Published by Globes, Israel business news - www.globes-online.com - on August 2, 2010

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