The State Comptroller is probing whether Noble Energy asked to transfer ownership of its Israeli licenses to a Cypriot subsidiary.
The State Comptroller is probing the sequence of events that led to Israel being exposed to a huge lawsuit by Noble Energy Inc. (NYSE:NBL) in Cyprus, sources inform "Globes." Among other things, the State Comptroller will examine whether ownership of the natural gas reservoirs in Israel has been transferred to a Cypriot company, whether Noble Energy requested permission for a transfer of ownership, and if it did, whether the Ministry of National Infrastructures, Energy, and Water Resources approved it. A "Globes" inquiry shows that there are different versions of the required permits and processes.
Perpetual threat
Three months ago, Noble Energy president and CEO David Stover said, "Noble Energy remains fully prepared, and is well positioned, to take the actions necessary to protect the value of its assets." Indeed, Noble Energy is well prepared. As Deputy Attorney General Avi Licht said in a Knesset Economic Affairs Committee meeting two weeks ago, Noble Energy has established a subsidiary in Cyprus, which enables it to sue Israel if the gas plan is not approved, according to the bilateral convention for protection of investors.
The company in Cyprus was apparently founded after the Sheshinski Committee completed its work and substantially raised the tax rate on gas. "What is happening is that one of the companies in the Noble Energy ownership structure is a Cypriot company, and it is therefore utilizing our trade agreement with Cyprus. They argue that they have grounds for this - that it is not based on the Israeli law, but on international trade agreements - and we are exposed there," Licht explained.
In other words, even though the rights in Noble Energy's oil licenses are registered in the name of Noble Energy Mediterranean, incorporated in the Cayman Islands, Noble Energy is liable to institute legal proceedings against Israel through its Cypriot company, in accordance with a convention that went into effect in 2003.
Noble Energy will probably demand international arbitration with Israel if the gas plan is not approved, but that is not the end of the story. Even if the plan is approved, Israel will always be under the threat of such a claim. Under the stability clause inserted into the gas agreement, for example, Israel will not be entitled to change its regulation in the gas sector for the next 15 years, and if it does so, it will be exposed to an international lawsuit that will continue for years. Two questions now arise: was Noble Energy required to obtain approval from the relevant parties in Israel for recognition of the Cypriot company's rights, and if it did require such approval, was such approval legally granted?
Among other things, obtaining state approval for changes in the ownership structure of rights is required in order to prevent a company's oil rights from being transferred to a hostile company. For example, Prime Minister Benjamin Netanyahu recently told MK Stav Shaffir (Zionist Union) that such a transfer of ownership would not be possible without the consent of the Minister of National Infrastructures, Energy, and Water Resources.
A clarification of Article 76 of the Israeli Petroleum Law, published in October 2010, states that a change in the control of a corporation holding oil and gas rights, whether direct or indirect, as well as the granting of a benefit related to such control, requires approval from the Antitrust Authority director general, after consultation. A benefit in this context can be any economic benefit arising from the right, including through direct or indirect holdings, royalties, information, liens, etc.
"Globes" asked Noble Energy and the Ministry of National Infrastructures, Energy, and Water Resources whether approval for the transfer of ownership had been obtained, and received contradictory answers. Noble Energy said that it had "been operating in Israel since 1998, and had always complied with the legal regulations and obtained all the legally required approval for all of its activities." The Ministry of National Infrastructures, Energy, and Water Resources said, "The Ministry has received no request for a transfer of rights, and therefore none was approved."
The Ministry of Justice declined to respond, and referred the question back to the Ministry of National Infrastructures, Energy, and Water Resources. The Cypriot embassy in Israel was unable to answer the question.
"Grave failure"
A perusal of Noble Energy Mediterranean's deed of incorporation for the purpose of identifying the company's owners shows that it states only that the company is based overseas and has no board of directors or shareholders. A search for the Cypriot subsidiary that owns the company in Israel also turned up nothing. According to the Bloomberg news agency, Noble Energy has several subsidiaries in Cyprus.
Noble Energy International also owns the rights to the Aphrodite gas reservoir in Cyprus. "Someone has to answer for the opening of a company in Cyprus that can sue Israel. If the Ministry of National Infrastructures, Energy, and Water Resources allowed Noble Energy to transfer its rights to a Cypriot company, it is a grave failure. If, however, it turns out that Noble Energy transferred the ownership without obtaining such approval, the failure is even worse - it is gigantic," says Van Leer Institute Chazan Center for Social Justice and Democracy research fellow Amnon Portugali. "The Cypriot subsidiary was set up just after the Sheshinski Committee for a single obvious purpose - to sue Israel when necessary."
Indeed, sources inform "Globes" that the State Comptroller's Office intends to probe the matter. The State Comptroller's Office said, "Although the matter was not raised in the report published on the development of the natural gas sector, we plan to conduct an initial query in this matter as part of the State Comptroller's policy of continual monitoring of the natural gas sector."
Published by Globes [online], Israel business news - www.globes-online.com - on December 15, 2015
© Copyright of Globes Publisher Itonut (1983) Ltd. 2015
