ttp://www.haaretz.com/print-edition/business/state-s-share-of-oil-profits-among-the-world-s-lowest-1.291834

Compared to other states, Israel is very generous to petroleum companies when it comes to sharing the revenues from oil and natural gas production, the Knesset Research and Information Center stated in a recent draft report.
By Avi Bar-Eli

Compared to other states, Israel is very generous to petroleum companies when it comes to sharing the revenues from oil and natural gas production, the Knesset Research and Information Center stated in a recent draft report.

The study on which the report was based was the first comparative study on the matter in years.

Israel’s government takes between 35% and 40% of companies’ revenues from the extraction of natural gas, mostly in taxes and royalties. Other countries, however, get between 40% and 94%.

After the study was issued, MK Carmel Shama (Likud ) said he plans to submit a bill aimed at increasing the government’s royalties from the current 12.5% to 16%.

“The country’s gas and oil belong to its citizens – they’re the real owners,” Shama said.

The policy has not been updated since 1952. But recently there has been massive interest in gas exploration off Israel’s shores in the wake of geological surveys indicating there may be large quantities of gas there.

The report is intended to serve as a foundation for future debate, should the explorations find marketable quantities of gas.

And the debate isn’t only theoretical; clearly, there’s a large amount of money involved.

The U.S. Geological Survey recently found that there may be as much as 3.5 trillion cubic meters of gas beneath the floor of the Mediterranean Sea, which would be worth about $540 billion. A portion of that lies beneath Israel’s coastal waters.

The government receives royalties equal to 12.5% of all gross revenues from gas or oil sales.

However, the state also covers 15% of the producers’ ongoing expenses, which means the royalties are only 10.6% in net turns.

Plus, the oil and gas companies enjoy tax benefits. They can write off exploration costs for tax purposes, and they can also get either a 27.5% discount on taxes on gross revenues or pay tax on only 50% of total taxable income.

Once tax revenues are figured in, the government gets about 40% of all revenues from gas and oil sales, the Knesset research center estimated.

At the Tamar gas field, for instance, the government is expecting to earn $16 billion, out of a total $40 billion in anticipated revenues.

In 2009, the government took in NIS 150 million in royalties, much of that from the Mary-B field off the Ashkelon coast, which is licensed to Tethys Sea.

The report reviewed different ways governments profit from natural gas and oil production while encouraging companies to invest in extraction.

Many countries have low royalty fees – which are paid on the total value of the gas or oil – but higher taxes, which are paid on profits.

In most countries, royalties are between 12% to 20%. Some developed countries such as Britain, demand no royalties at all but charge very high taxes. Britain takes only 40% of revenues, which makes it closest to Israel.

The countries that take in the largest share of profits from natural gas and oil include Norway, which gets a total of 78%, and Qatar, which takes a total of 94%.

In some developing countries, such as Azerbaijan, Bolivia and Indonesia, governments sign joint production agreements that let private companies take on the risk of exploration, and then cover their expenses. After that, the government starts taking 80% of the revenues.