Wednesday, January 5, 2011

How Much will Noble Energy Be Taxed On Their Big Israeli Gas Find? (NBL)

Last Wednesday we posted "Noble Energy Has More Upside on Huge Gas Find (NBL)" with the stock at $87.50.
We followed up on Thursday with the counterpoint: "Barron's Does Some Hatin' on Noble Energy (NBL)"

Now the stock is trading at $83.86, down 4.16%, I forgot to post a major writeup by the Wall Street Journal, and a reader sends me some material non-positive (c'mon, you thought I'd say 'non-public' didn't you) information.
First the Journal story:

Big Gas Find Sparks a Frenzy in Israel 
TEL AVIV—Two years ago, Ratio Oil Exploration LP, an energy firm here, employed five people and was worth about half a million dollars.

Today it sits at the center of a gas bonanza that has investors, international oil companies, Israeli politicians and even Hezbollah, Israel's sworn enemy, clamoring for a piece of the action.

Ratio's market capitalization now approaches $1 billion. The rally at Ratio is thanks to the company's 15% stake in a giant offshore gas field called Leviathan, operated by Houston-based Noble Energy Inc....
Much More between the ellipses
...Amid the stock-market frenzy, the Israeli government started considering changing its 1950s-era energy royalties and tax regime, to boost the government's take of any gas find.

Earlier this year, Finance Minister Yuval Steinitz said he was considering changing terms retroactively—meaning the government could extract better terms on previously assigned leases. Noble and Israeli oil executives went on the offensive.

A retroactive change would be "egregious" and "would quickly move Israel to the lowest tier of countries for investment by the energy industry," Noble's chief executive, Chuck Davidson, wrote Mr. Steinitz in April.
The company enlisted high-level negotiators, including the U.S. State Department and former President Bill Clinton, to lobby against any change.

Mr. Clinton raised the issue in a private meeting with Israeli Prime Minister Benjamin Netanyahu in New York in July, according to a Clinton aide. "Your country can't just tax a U.S. business retroactively because they feel like it," the aide said Mr. Clinton told Mr. Netanyahu.

Mr. Netanyahu was noncommittal, the aide said. A spokesman for Mr. Netanyahu declined to comment on the meeting.

Finance Minister Steinitz has so far ignored the pressure. Last month, he said a government-appointed committee had made preliminary recommendations to abolish tax breaks for energy firms and impose steep tax increases of 20% to 60% on windfall profits. Any tax changes are subject to approval by Israel's cabinet.
"Israel is sovereign to make its own decision and change its tax regime," Mr. Steinitz said in an interview.
Shares in energy companies plummeted on news of the tax increases. Delek Energy said it would have to reevaluate the Tamar field. "This really threatens our ability to deliver the project on schedule," said Gidon Tadmor, the CEO. Funding for development of the gas field is now on hold, he said, due to banks' concerns about the new tax regime....MORE
And here's the Israeli Ministry of Finance's "Summary of Draft Conclusions by the Sheshinski Committee":

...Main Points of the Committee's Conclusions

  1. Leaving the existing rate of royalties and some of the tax benefits
  2. Canceling the depletion deduction
  3. Oil and gas profits levy  The initial rate of the levy will be 20%, and it will rise gradually to 60% according to the amount of the excess profits.
  4. The proposed formula is of the R factor type:
  5. Financing development of the gas deposits  During the first years of production from the deposits under development, the Committee will recommend fiscal solutions to resolve the problem.
  6. Application - The proposed changes will apply as of the date of the decision, to all oil and gas deposits, since this involves taxation of future profits.


The share of the state and the public in the net profit after repayment of the investments from the sale of the gas and oil will increase from one third to about two thirds of the relatively profitable deposits.
The increase in the state’s share in the revenues will come mainly in later years in the life of the deposit, and therefore the impairment of the debt repayment capabilities and of the ability to establish the reserve is minor.
The impairment of the entrepreneurs’ incentives to operate in the industry is minimal, and will not result in non-development of existing and new deposits.

The proposed system is gradual and suitable for a broad spectrum of global situations, and responds dynamically to changes in price, or in the scope of the gas that is marketed, or to changing investment needs....MORE

"Sell 'em all, they aren't worth the paper they're printed on.":

I've mentioned* that one of my mentors was the best trader I've ever met. Creative, intelligent, disciplined (and bankrolled).
From time to time though, he would lose his mind and run around the floor screaming
"Sell 'em all, they aren't worth the paper they're printed on"....
and from Can you trust the First Bank of Nigeria?

...One of my mentors, and one of the sharpest traders I ever met, had the most common flaw of students of markets, hubris. In his case it was non-fatal, more of a cost of doing business:

1) He had somehow ended up with some of the
Boston Chicken-Einstein/Noah bagel bonds. We know how that worked out:
...Short-sellers got teary-eyed this week following word that old faithful Boston Chicken (Nasdaq: BOST) finally bit the Chapter 11 bankruptcy dust. Though hardly unexpected, Monday's announcement dropped the stock to $0.50 a share, down an astonishing 97% from its 52-week high near $16.
Source (scroll to "A Chicken Autopsy")
He knew it was a finance scam "but the debentures paid 11%"

2) He got into a rigged blackjack game in Yugoslavia. Lost half-a-mil. Said he started to think it was was fixed when he was down a couple hundred.
Wife: "Then why the hell did you keep playing?"
Him: "I thought I could beat it".

Out at $83.86.
Now let's find a Yugoslav blackjack game!