Eitan Aizenberg (Eisenberg), chief geologist and partner in Ratio, one of the Leviathan gas field stakeholders, is angry at the government’s conduct over the matter of the gas monopoly. This is what he has to say on regulation: “Imagine setting drug prices for Teva”; on politicians: “They are using us as an instrument for attacking each other”; on claims of non-competition: “The only creditable client is the Israel Electric Company”; and on bureaucracy: “As far as time is concerned, Leviathan is like cucumbers in a grocery storeroom.”

“Globes” – Special interview by Hadas Magen dated March 2015 (translation from Hebrew edition)

Eitan Aizenberg (Eisenberg) – The interview’s title, taken from Globes

If it were only up to him, the interview with Ratio Oil Exploration chief geologist and shareholder Eitan Eisenberg would focus on minerals and fossils. He would much rather leave politics and economics to politicians and economists. Despite this, he did end up speaking heatedly about the government’s attempts to break the gas monopoly, and chose to illustrate his remarks with metaphor miles away from geology.

“Where time is concerned, Leviathan is like cucumbers in a grocery storeroom,” he says with reference to Antitrust Authority director David Gilo’s decision to defer further discussions till the new government is sworn in. The moral is fairly clear: After a series of seemingly inconsistent decisions made by the government, this will only serve to brook further delays in the development of Leviathan, a joint venture of Ratio, Noble Energy, and Delek.

“Our politicians are using the natural gas as a basis for personal attacks on each other, but the world isn’t waiting around for us,” says Eisenberg. “Since we discovered Leviathan, Mozambique has discovered gas fields ten times larger; the US has developed the fracking industry, which increased their oil and gas reserves to a point where they can become oil exporters; Japan is learning to develop gas from hydrates (a type of methane gas “crystals” found in shallow seawater, H.M.); and the Egyptian market has lifted the gas price control an act that brought investments back in to the country. By the time we reach the market with Leviathan gas, there will be no market to speak of.”

Is that why the Palestinian power plant cancelled its contract with Leviathan?

Israeli regulation is what I would call ‘irregular regulation.’ Let’s say it like it is: What we are seeing right now is gradual nationalization. The government wants to run the gas field? They are welcome to take it over from us and run it; and we all know how the government runs things – badly. But if you want us to run the business, let us do it our way. It isn’t that I don’t understand the regulator – the regulator gets up in the morning and goes to work and wants to do what is best – but they don’t always make the best decisions, and each side tries to tug it his way, and there’s no one to control the situation and regulate it. Gas has become a political issue, and common sense has gone out the window.”

Maybe these decisions are necessary to make sure that public interest is not damaged? I’m sure you don’t believe that Noble Energy is here for Zionism.

“Noble is an international company and their primary goal is to maximize profits. To take a field and develop it is a huge technical undertaking, and it would never have happened without Noble. If anyone thinks it’s easy to discover oil, they’re very much mistaken. Basically, when you’re searching for oil, only one in ten exploration wells strikes something. Just look how many small companies started out in this industry and how many of them folded. We are talking about huge investments at very high risk.”

Risk there may be, but competition is something we’re not seeing: Delek and Noble, who are partners with Ratio in Leviathan, also control the Tamar gas field, which is the main supplier for the Israel Electric Company. Is that not a monopoly?

“On the contrary! The monopoly is on the client’s side. The only creditable client in the market is the IEC, and the government sets the price per energy unit. Noble and Delek created something out of nothing. They worked very hard to develop Tamar. They created value where there was nothing.”

That is still a monopoly by definition.

“Call it whatever you like. All I know is that everyone else who explored for gas around here, eventually quit. Then Cyprus tenders oil exploration licenses, and you’re seeing at least ten companies competing for them; in Lebanon, a very politically unstable country, you’re seeing 40 industry leaders showing up and asking for licenses. Here – we get no one at all.”

Leviathan gas field – Eitan Eisenberg

Maybe because they saw that the government is unwilling to allow its natural resources be managed without constraints.

“The government invited the petroleum companis to explore in Israel and we made the investments in exploration in complete accordance with the Petroleum Law. We managed to find oil. Now let’s see what the government has done so far: First, the Sheshinski committee (the committee headed by Prof. Eytan Sheshinski, which increased royalties due from oil companies, H.M.); then, the Zemach committee (which limited gas exports by the Leviathan partners, H.M.). What does this go to demonstrate? You’re being punished for being a success – we the regulators will decide how much you can export and how much you should sell in Israel, and we will also regulate the prices. Can you imagine telling Teva how to price their drugs, after the investments they made? They’re the ones who set the prices.”

Excuse me, but if I find Teva’s products too expensive for me, I can buy Merck, or Eli Lilly, or Pfizer. Here I have no alternatives.

“So put up another regasification unit of LNG and bring some gas over from abroad (this refers to setting up a unit for importing liquified gas, the like of which operates 10 km from the IEC power plant at Hadera, H.M.) You can do whatever you like, it’s only a question of costs. Do you have any idea how much it costs to bring gas through the LNG carrier? $18 per energy unit (as compared with $5.7 per unit from Tamar, H.M), plus the investment, plus annual expenditure for operation of the unit. So go ahead – set up a few more of these and get the gas from whomever you like. There are only three questions I would like to ask: Is this fair, is this smart, and what is good for Israel.”

It’s very clear what is good for Israel: that someone who made an investment will settle for a reasonable, non-piggish profit and the whole country can benefit from its natural resources.

“And who do you think is benefiting from all this gas? Do you know who the tycoon is, who holds the monetary beneficial rights for this gas? It’s the public! Public holdings in Tamar is 47%, the local petroleum companies 17% and Noble 36%. So who holds most of it? The public, who is deeply invested in this through provident funds. Now, the government gets between 66% and 77% of the revenues. But the public wants to have it out with a certain tycoon, and the government ends up cutting its nose off to spite its face. In the end, it’s the public that suffer most of the damage.”

And no-one realizes this?

“Once it becomes political, facts and figures are of no consequence to anybody, and that’s the way it ends up.”

Is that why Woodside, the potential Australian partner, backed out of the deal?

“Woodside is an excellent demonstration of what I’m trying to say. Their expertise is the whole chain of LNG (a technology used for transformation natural gas to liquid gas, H.M.) and that’s what they were brought here to do. They were supposed to become the LNG operator for Leviathan. It’s a competent company. They received from the Leviathan partners an exceptional business proposition, as far as they were concerned. What did they request from the government? To set taxation on export at the levels acceptable in other parts of the world. The other thing they requested was an accelerated depreciation and the third thing was – no more changes. The government was unable to commit to even the most fundamental thing. So Woodside walked away.”

Only this week, incidentally, Globes reported that Delek and Noble are suing the government for royalty differences they paid for deals between Tamar and Yam Tethys partnerships. According to the report, the sum in question is $58M, made up of the royalties paid plus interest.

“What Sheshinski and Gilo did was a violation of property law,” says Eisenberg. “I realize that in 1996 the banks were divested from their stakes in real corporations, and in 2005 they were divested of their provident funds. But you need to understand that these were mature corporations that had a long history behind them. Oil production in Israel is still in its infancy. We’re still trying to get the table of multiplication right.”

From the Suez Canal to the Mediterranean

Eisenberg, 79, born in Nes Ziona, fell in love with geology during his army service as a scout instructor: “I observed all kinds of natural phenomena, fossils, minerals in rock cracks, different types of rock and started to wonder about them.”

After completing his army service, Eisenberg went to study geology at the Hebrew University. Between terms he worked collecting samples in exploratory wells operated by the Israel Mining Company (a state-owned company established in 1951 which carried out geological surveys for minerals, transferred to ILC in the 1970s).

Three years into his university studies, he got a job as an associate geologist at Naphtha, and when the Sinai desert was occupied in the 1967 war, he was seconded to the Netivei Neft company when it took over the Sinai oil fields. “I was there all on my own,” recalls Eisenberg, “none of the senior workers wanted to go there, both because of the difficult physical conditions and because it was occupied territory. I saw it as a professional opportunity.”

After a few years at Netivei Neft, during which he initiated oil exploration in the Gulf of Suez, Eisenberg went on to manage oil companies from Texas that invested in Sinai and were granted oil exploration rights in the northern part of the peninsula and in the Gulf of Suez. Some of their wells were joint ventures with OEL (today IOC) and Netivei Neft. Upon the return of Sinai to Egypt, all these fields also changed hands.

In time, Eisenberg would use the knowledge he gained in Sinai in his Mediterranean Sea endeavors, but for the sake of context, here’s a reminder about the history of Israeli oil exploration. Till the 1980s, recalls Eisenberg, three state-owned companies controlled the oil exploration field: Lapidot, Naphtha, and IOC. Up till then, there had been more than 500 exploratory wells drilled on land, and 28 offshore. The wells drilled on land yielded a few discoveries, among them the Heletz oil field, which has produced some 16 Million barrels of oil since the 1950s, and the Zohar field, which produces gas.

At some point, the government changed the concept and began to offer exploration rights to publicly-funded private partnerships. “Yitzhak Moda’i, Minister of Energy between 1977 and 1981, promised a certain Jewish person, who was active in oil exploration, to match his investment dollar for dollar,” recalls Eisenberg. Foreign companies didn’t flock in, but several local oil partnerships were formed, which although not matched dollar for dollar by the government, however did enjoy various tax incentives. The leading names among these were Isramco and Avner (among whose founders was Dr. Eli Rosenberg, pioneer of commercial gas discovery in the Middle-east and one of Eisenberg’s teachers).

Eitan Aizenberg (Eisenberg)

In 1992, Landau and the Rotlevy families decided to enter the oil industry, and Eisenberg was called upon to help. Landau and Rotlevy each controlled 40% of the partnership, the late Zvi Zafriri held another 10%, and Eisenberg was given a similar share. Today, the company is controlled by the descendants of the founders, Yigal Landau and Ligad Rotlevy, along with Zafriri’s legal heirs.

Ratio’s first drilling site was in the Gan Yavne area, and most of its activity at the time was on land. “Those years that we were still drilling onshore saw enormous developments in offshore drilling technologies, and we gradually began to realize what we were facing,” relates Eisenberg. “Then, in the 1980s, there were technological breakthroughs in the seismology field, and huge progress in deep-water drilling capabilities. While in the 1970s we were able to drill at 200 meters under sea level at most, in the 1990s we could reach 1.0 kilometer. These kinds of capabilities were developed in the Gulf of Mexico, in the US and in Brazil. All this led up to our work offshore in the Mediterranean Sea.”

And you had the experience from working in Sinai.

“Absolutely. The geological structure of the Gulf of Suez is similar to the Mediterranean, being in fact an extension of an ancient sea. The top layer is 1 kilometer of clay. Then there is another kilometer of salt, then more sand and clay. Our reservoirs are located between the salt layer and the one underneath it.”

Eisenberg recalls that the ‘first to identify’ the possibility of drilling in the Mediterranean was geologist David Niv (later known for exposing the Netivei Neft scandal – a corruption scandal in which Niv claimed the government company was formed based on inappropriate considerations by then-deputy Minister of Finance Zevi Dinstein. These claims were examined by the government-appointed Vitkon committee, and mostly refuted).

In 1996, deep-sea drilling was becoming a fact: Noble, Delek, and Avner received the first exploration license and began working on the Maya prospect. 1999 saw the development of the Noa prospect, initiated by geologist Dr. Eli Rosenberg and his partner in Avner, Dr. David Hacohen. This well produced gas on an economic scale.

“That was an eye-opening moment,” says Eisenberg. “At that point I realized that we need to stop drilling onshore and shift our efforts offshore. We also understood that there was no call for us to take the entire activities upon ourselves, and we started to seek for partners in deep-sea drilling.”

Eisenberg refers to the years 1999-2005 as “the British Gas period”. The UK based energy giant was granted exclusive drilling rights in the deep water of the Mediterranean, and carried out seismic studies in Israel (in the block that would later become the Tamar gas field), Egypt, and Gaza. However, British Gas gradually began conceding its licenses, and in 2008 closed down the Israel offices.

Looking back, this was clearly a bad call, because some time later Delek and Noble stepped in where British Gas left, and the Tamar partnership ended up signing the biggest gas supply contract in Israeli history, with the IEC.

“To this very day I can’t figure out why the government closed the entire area to other companies,” Eisenberg recalls. “Possibly they were so glad a big company came along, that they wanted to let them drill in peace without being interrupted by small fry. It turned out to be a waste of valuable years, because we might have made the discoveries in Tamar, Dalit, and Leviathan a few years earlier.”

Birth of Leviathan

In 2006, upon issuance of the offshore petroleum regulations, the sea was opened to everyone. Ratio, which was not exactly the fastest player in the game, settled for the 3000 sq km block (later called “Ratio Yam permit”), where the Leviathan gas field is now located.

“And that is when the clock started ticking,” says Eisenberg. “When you’re given an area, you get it with a preliminary permit for 18 months. At the end of that time, you need to decide what you’re going to do, and then, out of the preliminary permit, you need to divide the area into few parts of 400 sq km. The license is good for 7 years, there’s a work plan, and you need to start drilling within 2-3 years. If you succeed in finding something, there’s a third stage, where you get the production lease for 30 years.”

When Ratio began searching for partners and an experienced operator, Eisenberg approached everyone he knew from his days in the Suez Gulf and in Texas, but received no favorable responses. A friend he knew from Suez, who owned a company in Texas, advised him to try someone who was already working in the Mediterranean, because other people would find it difficult to understand what the project entailed.

“And that’s what I did,” recalls Eisenberg. “I approached a friend of mine, Dr. Yankool Gilboa, who was the geologist at Avner. I showed him all the data. He said, ‘You’ve managed to convince me, and I’m going to take this on, subject to approval by Gideon Tadmor (Delek Drilling chairman and CEO of Avner, H.M)”.

It took another six months for Ratio and Delek to convince Noble to join the partnership as the operator of the group. This partnership gave birth to Leviathan – the largest gas field ever discovered in Israel, with enough gas reserves to supply Israel’s needs for many dozens of years (once the Tamar gas field is depleted) and to also allow extensive gas exports.

“Without Noble nothing would have happened in this country,” says Eisenberg decisively.

And without Delek?

“Delek provided funding. Delek is a key financial investor and I have nothing further to say on this point. Noble provided funding, know-how, and operation expertise. In order to comprehend just how important operation is, I can tell you that a poor operator could get you into trouble, while a good operator will do the work you set out to do. The operator makes decisions, makes sure all the technical capabilities are in place for producing gas, makes sure that it would be feasible to produce, and that we have decent regulation that would allow us to make a profit. Take British Gas – an international company that abandoned its stake after deciding this setup was not for them.”

Gas from Tamar was first delivered two years ago. Till then, Israel received its gas supply from Egypt – a supply line that was cut off abruptly about three years ago due to recurrent sabotage of the pipelines, a side effect of the Arab Spring.

At the same time, Israel set up a regasification unit in Hadera, which imports LNG and convert it to natural gas (Liquified Natural Gas, gas stored in containers at a temperature of minus 161 degrees celsius, by which it becomes a liquid and its volume decreases by 600).

“It is a good and wise decision,” says Eisenberg, “but just bear in mind that this regasification unit costs $570M to build, and annual operation is $77M.”

A few years ago, Eisenberg attracted media attention through a business transaction: Within a single month he sold NIS 4.5M worth of Ratio shares and purchased shares of the competitor, Lapidot. The market perceived the sale of Ratio shares by its chief geologist as a vote of nonconference in the company, causing stock prices to plummet by 40%.

Can you explain that?

“Anything to do with buying and selling is my private affair.”

But what was the sense in selling Ratio shares, buying Lapidot shares, and then selling them a day later?

“One thing has nothing to do with the other, and this is a jumble of unrelated things, and I have no intention of explaining anything.”

Another, slightly more embarrassing affair associated Ratio three years ago with underworld figures: following a dispute with contractor Shlomi Shukrun who invested with the partnership, the latter filed a claim against Landau for allegedly taking him to arbitration with leading mob bosses such as Meir Abergel.

Eisenberg’s name was not tied up in this scandal, but he admits that it damaged the company’s reputation. “Happily for us,” he adds, “this whole affair is behind us and we have moved on.”

South Sea Adventures

These days, he is busy seeking investment opportunities overseas for him and his partners. A month ago, Ratio Petroleum – a company owned jointly by him, Landau, and Rotlevy – was given exploration rights in an 8000 sq km block off the island of Malta.

“Malta is currently in the same situation Israel was before the discoveries,” says Eisenberg. “They’ve drilled 11 offshore wells till now. Drilling there is a professional challenge, which is exactly what I like.”

What made you think there’s oil to be found there?

“That’s where my professional knowledge comes in. Granted, it’s still early days, we haven’t carried out a seismic study yet. I’m glad for this opportunity – working in an area previously untapped.”

And is Malta more friendly to oil prospectors than Israel?

“Very friendly. I met with the Maltese Prime Minister. I asked him for an area which no one else had an interest in. Most of their wells drilled in the northern side of the island, close to Sicily that has some discoveries around it. They thought they would find something on their side as well, but so far they haven’t, and I’m hoping we will, on the southern side.”

The Langotsky Dispute

Celebrations over gas discovery, and exploration and well-drilling in particular, have brought geologists into the public eye. Possibly the most well-known of them is Yossi Langotsky, who has earned much credit in the Mediterranean gas-drilling arena, and is considered the expert behind the Tamar and Dalit wells, which are named after his granddaughter and daughter. Langotsky carried out an arbitration procedure against Beny Steinmetz and his company Scorpio, under the claim that the latter abandoned the project, thus causing him to lose his stake in Tamar and Dalit. Steinmetz was ordered to pay Langotsky a compensation of NIS 50M, and his request to annul the arbitration decision was rejected.

Five years ago, Langotsky, who is represented by Adv. Yossi Segev, sued Eisenberg and Ratio for NIS 2.5M, under the claim that they used Langotsky’s confidential information to lead them to the discovery at Leviathan. Langotsky dropped his lawsuit last August after being told he has no legal cause.

Subsequently, Adv. Segev found that the Sdot Neft, an exploration company Eisenberg advised in the past, does have legal cause against Ratio, having been the license holder for the prospect, and has filed a lawsuit against Ratio on its behalf.

Bringing up Langotsky’s name somewhat annoys Eisenberg: “He has hounded me and the company for five years, together with his partner Adv. Segev, who will get a percentage of the winnings (Segev’s fees are always taken in percentages of his clients’ winnings, H.M.). Now there’s this new lawsuit on behalf of Sdot Neft, which is absolutely absurd.”

Why do you think he withdrew his claim?

“He realized he was going to lose the case, and he and Adv. Segev are looking for ways to make more money.”

Are you saying that he made the whole thing up, this claim that you copied from him?

“Mr. Langotsky is a first-rate public relation person. He talked someone into calling that prospect Tamar. I can tell you that the Matan license was named after a grandson of Avraham Pe’er, who was the Clal Industries representative in the deal – does that imply that Avraham Pe’er is the man who discovered the Tamar field?”

Langotsky in response: “Eisenberg’s comments are complete nonsense and do not dignify a reply”.

Adv. Segev declined to comment.

Click here to read the full interview in Hebrew