Published On: Wed, Mar 12th, 2014

Leviathan Partners, Gov’t Argue Over Lease

OIL gas

The partners in the Leviathan gas field and the Ministry of National Infrastructures disagree over the terms of the lease that the government is offering them. The negotiations are entering the critical stage on the lease, which regulate the developers’ rights and duties to the stage during the field’s 30-40 year lifespan.

Sources inform ”Globes” that the Ministry of National Infrastructures’ legal adviser, Adv. Drora Lifshitz made the demand. The Leviathan partners say that this clause in the lease will make it very hard for them to sign long-term gas supply contracts with foreign customers.

Earlier this year, the Egyptian government took a similar step to restrict gas exports by foreign companies operating in the country, in favor of the domestic market. The restriction exposes the government to $6 billion in claims by the foreign companies that export gas.

The Ministry of National Infrastructures also wants to reserve the Petroleum Commissioner’s wide-ranging rights to determine natural gas pipelines, in order to guarantee redundancy and allow other gas producers to hook up to the infrastructure. The Leviathan partners say that adapting the infrastructure to other suppliers will add hundreds of millions of dollars in construction costs, and they are insisting that the government participate in the added cost, or at least provide guarantees for the raising of the additional capital.

The Leviathan partners intend to invest an initial $4.6 billion in the gas field’s development, including construction of a floating production, storage and offloading (FPSO) ship with a 16-billion cubic meter (BCM) annual capacity for the domestic market and possible customers in Cyprus, Egypt, Jordan, and Turkey.

The draft lease also includes a “local content” clause requiring the Leviathan partners to give work to Israeli companies. This will greatly help establish a domestic oil and gas services industry. The Leviathan partners intend to invest $10 billion in the coming years in developing the gas field, including switching from the FPSO to a floating liquefied natural gas (FLNG) facility for exporting gas to Asia.

The partners in Leviathan and the government are due to sign the lease agreement within days, because the companies’ current rights expire on March 20. The partners want to sign the final farm-in agreement with Woodside Petroleum Ltd. (ASX: WPL) on March 27. That said, the current rights can be extended by several months and the signing date with Woodside is not binding.

Published by Globes [online], Israel business news – www.globes-online.com 

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