Energy: Oil & Gas

Published date08 December 2020
Subject MatterEnvironment, Energy and Natural Resources, Energy Law, Environmental Law, Oil, Gas & Electricity
Law FirmYigal Arnon & Co
AuthorMr Simon A. Weintraub and Avi Anouchi

1 Does your jurisdiction have an established upstream oil and gas industry? What are the current production levels and what are the oil and gas reserve levels?

The State of Israel was established in 1948. In its early days, Israel's oil industry had some modest success. The first oilfield, Heletz, was discovered in 1955, and yielded 17.2 million barrels of oil. Unfortunately, only small amounts of oil have been discovered since then, though the exploration continues, with the hope of discovering more fields.

Israel's natural gas industry was set up in 1999 with the discovery of the Noa reservoir off the coast of Ashkelon by the Yam Tethys partnership. A few months later another reservoir, Mari B, was discovered. It was estimated that these reserves held about 45 billion cubic meters (bcm) of natural gas, which provided a limited amount of natural gas to the Israeli market and primarily to the Israeli Electric Corporation, its main customer. Today, these fields are nearly depleted. More fields have been discovered since then, chief among them are the Tamar field off the coast of Haifa, holding an estimated 283 bcm of natural gas, which commenced commercial production in April 2013, and another maritime reservoir, the Leviathan field (535 bcm), which commenced commercial production at the end of December 2019, as well as the Karish and Tanin fields that are set to start production in 2021. Due to these discoveries, a significant portion of Israel's natural gas demand is now met by local production, independent of foreign import. As of March 2019, Israel estimates that its seabed contains 75 trillion cub feet of gas and 6.6 billion barrels of oil.

2 How are rights to explore and exploit oil and gas resources granted? Please provide a brief overview of the structure of the regulatory regime for upstream oil and gas. Is the regime the same for both onshore and offshore?

The petroleum sector in Israel is regulated by way of two primary laws: the Petroleum Law, 1952 (the "Petroleum Law") including the Petroleum Regulations, 1953 promulgated thereunder (the "Petroleum Regulations") and the Natural Gas Sector Law, 2002 (the "NG Law").

The Petroleum Law governs and regulates Israeli upstream activities (onshore and offshore) with respect to exploration and production of petroleum, broadly defined in the Petroleum Law as: petroleum fluid, whether liquid or gaseous and oil, natural gas, natural gasoline, condensates and related fluid hydrocarbons and also asphalt and other solid petroleum hydrocarbons when dissolved in and producible with petroleum fluid.

The NG Law governs the midstream and downstream activities and sets out a licensing regime for Israeli natural gas infrastructure, including distribution, transmission, storage and LNG facilities. For more details see question 17.

All petroleum resources in Israel and its continental shelf belong to the state. The Petroleum Law provides that no person may explore for petroleum without a preliminary permit, license or lease, and no person may produce petroleum without a license or lease.

The Petroleum Law falls under the jurisdiction of the Minister of National Infrastructures, Energy and Water Resources (the "Energy Minister") who in turn is tasked with appointing a Petroleum Commissioner (the "Petroleum Commissioner") to be responsible for matters related to oil and gas exploration within the territory of Israel, in conjunction with the Petroleum Council that advises the Energy Minister and the Petroleum Commissioner (the "Petroleum Council"). The Petroleum Council is comprised of 15 members, with at least seven representing the public and is required to meet at least four times a year.

Petroleum resources in the subsoil of on mainland Norway and any associated activities are regulated by the 1973 Land Petroleum Act. As most of the Norwegian mainland is without sedimentary rocks no activities have to date been conducted on the Norwegian mainland. Any activities related to petroleum within the territory of Spitsbergen is regulated by Norwegian law and jurisdiction expressed primarily through a 1925 Royal Decree - Bergverksordningen, established pursuant to the 1920 Svalbard treaty (entry into force in 1925). Very strict environmental regulations apply for most economic activity due to the sensitive Arctic environment. Only limited exploration activities have been undertaken at Svalbard and no commercial production.

3 What are the key features of the licence/production sharing contract/concession/other pursuant to which oil and gas companies undertake oil and gas exploration and exploitation?

The Petroleum Commissioner, in consultation with the Petroleum Council, is responsible for all matters relating to the licensing regime. There are three main rights that may be granted under the Petroleum Law: a preliminary permit, a license and a lease. Such grants are all recorded in the Petroleum Register by the Petroleum Commissioner and are part of the public record.

A preliminary permit confers on its holder the right to carry out preliminary testing investigations, not including test drilling, in order to ascertain the prospects for discovering petroleum. The Energy Minister may grant a permit holder priority rights for the receipt of a license in the permit area for a period of up to 18 months.

A license confers upon the licensee: the right to explore for petroleum in the license area (such area is defined in the license and is limited to a maximum area of 400 square kilometers) and outside such area in certain circumstances; the exclusive right to conduct test or development drilling in the license area and to produce petroleum; the right to obtain a lease after having made a discovery in the license area.

The license includes a work program to be carried out, which would typically include at least one exploration well. A license is granted for an initial term of three years and can be extended in accordance with the conditions set forth in the Petroleum Law to up to a total term of seven years from date of grant of license.

Once the Petroleum Commissioner recognizes that a discovery has been made in a given license area, the licensee may be granted a lease in respect of any area chosen by the licensee within the licensed area (not exceeding 250 square kilometers). Such lease confers upon the lessee the exclusive right to explore for and produce petroleum in the leased area for the term of the lease. The term of a lease is generally 30 years from the grant date, and may be renewable for an additional term of 20 years, subject to various terms and conditions that may be set by the Energy Minister in consultation with the Petroleum Council.

A lessee may also construct pipelines for the transport of petroleum and petroleum products and install other facilities required therefor. The Petroleum Commissioner must approve the route of all pipelines, other than gathering pipelines leading to tankage, within, or adjacent to, the leased area. Additionally, the Petroleum Commissioner may, after consultation with the Petroleum Council, require the owner of an approved pipeline to allow other lessors to use its pipeline to transport petroleum (to the extent that the pipeline is not required by its owner), on such reasonable terms as the Petroleum Commissioner may prescribe.

The lease holder is required to produce with respect to each lease an autonomous, unconditional, irrevocable bank guarantee to the State of Israel, denoted in New Israeli Shekels and increasing at the different stages of development, up to a maximum of US$ 50 million per lease upon commencement of the flow of gas. The guarantees shall ensure the adherence to the leases and permits, and as a condition to the granting of the leases. The guarantees shall remain in force even after the expiration of the leases, until such time as the Petroleum Commissioner declares them no longer necessary.

The Petroleum Commissioner is entitled to collect all or part of the guarantee, if: (i) the lease holder failed to implement the development plan, construct the facilities or did not begin commercial production or pumping to the reception facilities on the specified dates in the lease; (ii) a safety or environmental accident occurred and the lease holder failed to rectify the fault; (iii) the lease holder failed to carry out abandonment in accordance with the provisions of the lease; (iv) a claim or demand was filed against the State of Israel for payment of compensation pursuant to damage caused due to violation of the terms of the lease; (v) the State of Israel suffered damages or expenses due to cancellation of the lease; (vi) the lease holder failed to carry out the required inspections, or failed to submit required documents or reports; (vii) the lease holder failed to comply with the provisions regarding insurance as stated in the lease or by the law; (vii) the lease holder did not comply with the provisions of the lease with regard to the guarantee; or (viii) the lease holder committed a material breach of other conditions of the specific leases.

The Petroleum Law provides that the Petroleum Commissioner may cancel an owner's petroleum right, subject to 60 days' prior written notice, for non-compliance with any of the provisions of the Petroleum Law, Petroleum Regulations, any condition of the petroleum right, or the submitted work program. Additionally, if a lessee fails to produce petroleum in commercial quantities in the initial three years of the lease, or has thereafter ceased commercial production, the Energy Minister may condition the continuation of the lease on the production of commercial quantities of petroleum within a defined period (which will be at least 60 days), subject to various restrictions set forth in the Petroleum Law. If production is not resumed as required by the notice, the lease will expire at the end of the period determined by the Energy Minister.

4 Are there any unconventional hydrocarbon...

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