The Israeli Ministry of National Infrastructure, Energy and Water Resources (the “Ministry”) has recently published a call for bids, to invite international energy players to submit offers for the exploration of the offshore soil within the Israeli Exclusive Economic Zone (EEZ).

This initiative follows the rather tense political environment which prevailedin Israel over the approval of the Gas Framework between the Israeli Government and the Gas operators in Israel (led by Delek Drilling and the US based Noble Energy). Criticized by a large section of public opinion and authorities (including the resigning Antitrust Commissioner and the dismissed Chairman of the Public Utilities Authority), and after having been invalidated by the Supreme Court, the Gas Framework was eventually amended, and then adopted by the Israeli Government on May 22nd 2016.

The Ministry’s call for bids follows two major discoveries of natural gas fields within the EEZ: the Tamar gas field discovered in 2009 and whose reserves are estimated at 282 BCM (2P) and the Leviathan Gas Field, discovered in 2010 and whose reserves are estimated at 500 BCM (2C).

Additionally, according to the highly encouraging findings of a study ordered by the Ministry of Energy in 2015 from Beicip – Franlab, the resources yet to be found in the marine region of Israel are estimated to be around 6.6 billion barrels of oil and about 2,137 BCM of natural gas.

The Israeli Government is making significant efforts to enhance the discovery and development of the unexploited Israeli oil and natural gas resources. Amongst others, Yuval Steinitz, Israel’s Minister of Energy, organized in recent months a road show in London and Singapore, to meet and present international companies with estimated resources and participation instructions for its call for bids.

Later, as part of efforts to promote the development of Israel’s natural resources, the Israeli Regulator adopted the Petroleum Regulations (Principles of Action for Offshore Exploration and Production) – 2016 (the “Offshore Regulations”), to define the rules governing the granting of licenses and leases to operators for the exploration of the Israeli submarine soil.

Call for Bids

The Ministry has divided the offshore bidding area into 24 blocks, adjacent or near the blocks already licensed or leased where natural gas was previously found or is being exploited. Each block area spans from 118 km2 to 400 km2 and the average water depth is from 680 to 1770 meters.

To submit a bid, bidders and operators must meet the prequalification requirements of the Offshore Regulations: financial capacity and technical experience. Bidders and operators may rely on the financial capacity and technical experience of their controlling shareholders, under certain conditions.

The bids submission date is set at April 21st, 2017.

Monopoly

In light of the recent criticism from public opinion of the existing monopoly held by Noble Energy and Delek Drilling (Tamar and Leviathan leases), the Ministry opened the current bidding round to new players only: bidders which already hold directly or indirectly an interest of 25% or more in a petroleum lease offshore Israel, which hold recoverable reserves greater than 200 BCM 2C (SPE-PRMS), are disqualified.

Further, according to the call for bids, no bidder will be granted licenses to explore more than 8 blocks.

The Minister of Energy is offering the bidders (against payment of a fee) a significant amount of information to enable them to carefully choose the blocks areas for which they wish to bid. Although bidders may submit offers regarding up to 24 blocks, each bid shall be accompanied by a deterrent bid bond per block area.

Once the bidder has demonstrated that it complies with the PQ requirements of the Offshore Regulations, each bidder is invited to provide a detailed plan for the exploration works it aims to perform during the first 3 years of the license. It is worth noting that the commitment to drill an exploration well during the first 3 year period, is strongly encouraged by the Ministry as this will constitute approx. 60% of the evaluation criteria relating to the bidder’ offer.

The license for exploration works lasts 3 years, extendable by an additional 3 year period, under certain conditions. After discovery of oil or natural gas, the license may be converted into a lease of 30 years, extendable by an additional 20 year period, under certain conditions.

Royalties and Tax Incentives

In the event of discovery, the State will be entitled to receive 12.5 % of the quantities of oil and gas produced and exploited by the holder of the lease.

In parallel, the Israeli legislator enacted in the Petroleum Law – 1952 several tax incentives (exemptions from customs, import taxes, purchase tax) in connection with the import of equipment for the purpose of the exploration and production of petroleum.

The oil and gas exploration and production works involve additional aspects of local law, including labor law and local preference provisions, as detailed in the relevant laws and regulations.