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US Could Sue Israel over Hike in Oil Royalty Fees

As a huge oil rig approaches Israel for drilling, an Israeli judge says the US could sue Israel if it hikes royalty fees for oil and gas finds.
By Tzvi Ben Gedalyahu
First Publish: 10/10/2010, 2:59 PM / Last Update: 10/10/2010, 3:20 PM

As a huge oil rig approaches Israel for drilling, an Israeli judge says the US could sue Israel if it hikes royalty fees for oil and gas to be brought from recent huge discoveries that could make the Jewish State self-sufficient in energy. A Sedco Express drilling rig leased by Noble Energy is southeast of Crete and is moving slowing to Israel to drill at the Leviathan field.

Judge Abraham Sofaer, representing Noble, told the Knesset Economics Committee last week, “I don't need to tell you what a tragedy it will be if the United States and Israel appear in a European court. Nobody wants that.” Finance Minister Yuval Steinitz dismissed the threat. 

He stated that the possibility is “ridiculous” and that Western countries, including the United States, Norway and Britain, previously have changed royalty fees on oil and gas.  "No court can say to Israel not to do what other democratic countries such as the US, Britain, and Norway have done. It is simply an attempt to mislead."

However, Judge Sofear stands by his argument. He told Globes, "It will be very difficult to ignore the negative fallout of raising royalties. Israel does not want to be Venezuela. Israel needs to maintain its credibility. If Noble's rights are impinged, the U.S. government will have to decide whether to act on behalf of Noble in order to receive full compensation for the damages caused to it. The sides agreed in a contract between them, that a disagreement like this will be handled by the international court of justice.”

Noble is a leading partner in the consortium that has discovered trillions of cubits of natural gas, with the possibility of large oil reserves underneath the gas, off the Mediterranean Coast.

The American Embassy also is going to bat for Noble's behalf, but embassy spokesman Kurt Hoyer told the Associated Press only that “it is in our interest to promote American industries overseas."

Following the recent discoveries, Likud Knesset Member Carmel Shama proposed hiking the royalties by 80 percent to enjoy a larger share in the new-found prosperity, a long-time pipe dream for Israel, a sandy island in a region of oil-rich Muslim countries, such as Saudi Arabia and Iran.

In addition, Labor MK Shelly Yechimovich and other colleagues want the tax receipts from oil and gas companies to be placed in a national fund, as is done in Norway.

Economics Committee chairman Ofir Akunis, a Likud MK, said that raising royalties must be done in a “responsible” way and not “let fundamentalist leftist organizations run Israel's economy. I will fight until my last drop of blood to prevent the economy's return to a situation in which the main victim was the citizen."

Lawson Freeman, a Noble Energy vice president, told the committee that the company has been in Israel for 12 years and was the only international company to take the risk to operate in Israel. He argued that the government said four years ago that royalties would not change and that to raise them now, after the discoveries, is unfair.

Yitzchak Tshuva, head of the Delek Group that is part of the consortium, told the committee, “Since 1952, there have been 513 wells drilled in Israel - all of which were barren and all the investors lost their money,” Globes reported. “No one thought to compensate investors, and they took all the risk. Despite the risk, we continued to drill. We succeeded in convincing Noble Energy to invest in Israel despite the heavy cost it paid because of the Arab boycott. Noble should be hugged.”