Delek to develop Cypriot gas field without Israel’s consent

Yesterday, Delek Group Ltd. (TASE:DLEKG) unit NewMed Energy (TASE: NWMD), formerly Delek Drilling, published its first quarter financial report. Clause 11.3.7 about the plan to develop Cyprus’s Aphrodite offshore gas field said, “As of the date of the report’s approval, the partners in the Aphrodite prospect are working with the Cypriot government to update the development and production plan for the field, in such a way as to integrate development of the field with existing installations and/or developing plans for adjoining assets. As part of this, the partners have taken a decision to contract with a drilling ship for conducting drilling at Aphrodite A3, in Block 12, which will subsequently serve for production drilling including working to update the date for implementation.”

The problem is that for the past decade there has been a dispute between Israel and Cyprus with a small part of the Aphrodite offshore field extending into Israeli economic waters into the Ishai license. As the partners of the Aphrodite and Ishai fields have been unable to reach agreement on dividing up the gas, in February Israel’s Minister of National Infrastructures, Energy and Water Resources Karine Elharrar decided to resume diplomatic talks on the matter.

She informed the Aphrodite partners in the Cypriot section of the field Delek Drilling (now NewMed Energy) and Chevron, and the partners in Ishai, Israeli companies Israel Opportunity, Nammax Oil & Gas, Petroleum Services Holdings (PSH), and Eden Energy that she was giving them just one more month to reach agreement on a compensation payment to the Israeli partners in the prospect form them to forego their full rights on the field and its assets.

Negotiations failed and solving the dispute came back to negotiations between Israel and Cyprus including the unification of the shared field, which was agreed in principle in 2010.

A letter sent by Elharrar said, “The State of Israel has not relinquished its rights on the Aphrodite field including the demand that the field not be unilaterally developed (by Cyprus).” The Ishai partners expressed strong satisfaction on the position of the Israeli minister, which contradicted her predecessor Yuval Steinitz.

The Aphrodite-Ishai field contains an estimated 120 BCM on the Cypriot side and a further 10-12 BCM on the Israeli side. As the Ishai field is geologically integrated with the Aphrodite field, development and production can only be conducted jointly with the agreement of both countries.

Steinitz tried to find a solution with his Cypriot counterpart Natasa Pilides but the Israeli companies in the Ishai field opposed his stance on the grounds that he was relinquishing natural resources. Israel’s Ministry of National Infrastructures, Energy and Water Resources warned in May 2021 that there was concern that the Aphrodite partners would begin developing the field without Israel’s agreement. International experience has been that most solutions in similar situations worldwide have been through compensation for the small share rather than joint development and production and unification.

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It now seems that Israeli concerns are being realized. NewMed Energy planms to move a drilling platform from the Leviathan field to Aphrodite and “Globes” has been informed that the date for operating it is the first half of 2023. The decision by the Aphrodite partners to get things moving follows pressure from the Cypriot government, which wants to end the impasse so that Cyprus’s largest field of proven natural gas reserves can provide revenues and energy for the decades to come, until the shift to renewable energy sources is completed. Sources familiar with the matter say that the dispute is not large and the geopolitical and economic needs of both countries is to bring about gas production from Aphrodite as quickly as possible, and that it could also help meet Europe’s urgent need to replace Russian gas.

The Israeli partners in the Ishai field remain resolutely opposed to unilateral moves. They said in response, “We are in constant contact with the Ministry of Energy and the Minister of Energy who has made it clear to both sides involved that Israel opposes unilateral development of the field and that the State of Israel will act on all levels to protect the rights of the field including the Ishai rights holders. We are sure that the Ministry of Energy and the minister who heads it will do everything required in order to ensure the rights of the State of Israel in the field and will take care that the field is not developed unilaterally before understanding are reached with Cyprus.”

Israel’s response is likely to be influenced by talks with Europe and Egypt on possible liquefied natural gas (LNG) exports to the EU via Egyptian liquefaction installations and the broader strategic implications on the issue.

The Ministry of National Infrastructures, Energy and Water Resources said, “The position of the Israeli government is that development operations of the shared field will not take place unilaterally before arrangements are reached on the issue. This position has been made clear several times to the Cypriot government. We do not know the announcement published (by NewMed Energy) and the subject will be examined during the next meeting with the Cypriot professional team.”

Published by Globes, Israel business news – en.globes.co.il – on May 24, 2022.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2022.