The Israeli Petroleum Law enacted in 1952 and its amendments. The Israeli Petroleum Law was passed in 1952 and underwent substantial amendments in 1965. The law governs the exploration and production of petroleum in Israel. Petroleum is defined as any petroleum fluid whether liquid or gaseous and includes oil, natural gas, natural gasoline, condensates and related fluid hydrocarbons and also asphalt and other solid petroleum hydrocarbons when dissolved in and producible with fluid petroleum. The Law provides for three types of rights, two relevant to the exploration stage, and the third for the production phase. The lowest level right is the preliminary permit, which may be granted for a period not exceeding 18 months. The permit allows the prospector to conduct preliminary investigations, except for test drilling, to ascertain the prospects for discovering petroleum in the area covered by the permit. The recipient of a preliminary permit is entitled to request a priority right on the permit area, which, if granted, prevents the awarding of any other petroleum right on the area. There are no statutory restrictions as to maximum size of the permit area or to the number of permits which may be held by one prospector, however the policy is to award no larger an area than that for which the applicant has a reasonable plan of operation and has shown possession of the necessary financial resources to execute the plan. The second type of right is the license, bestowing an exclusive right for further exploration work, and requiring the drilling of test wells. The initial term of a license is up to three years and may be extended for up to an additional four years. A license area may not exceed 400,000 dunams (approximately 100,000 acres). Upon discovery of petroleum, the licensee has a statutory right to receive the third type of right, which is a production lease. The initial lease term is 30 years, extendible to a maximum period of 50 years. A lease confers upon the leasee the exclusive right to explore for and produce petroleum in the lease area and requires that the leasee produce petroleum in commercial quantities (or pursue test or development drilling). The leasee is entitled to transport and market the petroleum produced, subject to the right of the Government to call upon him to supply local needs first, at market price. A leasee is liable for a royalty of one-eighth (12 .5 %) of the quantity of petroleum produced and saved from the lease area, excluding the quantity of the petroleum used in operating the leased area, and subject to a minimum royalty set forth in the Law.
The Petroleum Law also gives the state of Israel first right to buy gas from a field as well as the right to take its royalty (12.5%) in kind (namely in gas rather than in money)
