Israeli regulator opposes Noble, Delek's control of Leviathan gas field

* Delek and Noble (NYSE: NE - news) hold 85 pct of Leviathan

* Gas production had been expected to begin by 2018

* Noble says could re-think investment in Israel

* Oil, gas shares stocks down as much as 22 pct (Adds comments by analyst, Delek, Noble; political angle)

By Steven Scheer

JERUSALEM, Dec 23 (Reuters) - Israel's competition regulator recommended on Tuesday breaking up what it says is a monopoly control of the country's offshore gas reserves by Noble Energy (NYSE: NBL - news) and Delek Group (Other OTC: DGRLY - news) , who together hold 85 percent of the giant Leviathan field.

The decision puts in doubt current development plans for Leviathan, the huge deepwater gas field discovered four years ago off the Israeli coast, hitting the share prices of all the local partners in Leviathan.

Following heavy political pressure, Commissioner David Gilo has revoked a compromise deal that would have allowed Texas-based Noble Energy and Israel's Delek Group to keep control of Leviathan.

Anti-trust authorities have been targeting the companies, which discovered the field and other, smaller fields nearby, after critics, mostly political opponents of Prime Minister Benjamin Netanyahu, said that the firms have too much control over such a valuable national asset.

Leviathan is one of the world's largest offshore gas finds to be made in the last decade, with an estimated 22 trillion cubic feet (622 billion cubic metres) of reserves. Production had been expected to begin in 2018 following an initial investment in the development of around $6.5 billion.

Noble and Delek also own controlling stakes in the nearby Tamar field, which was discovered in 2009 and started producing nearly two years ago from reserves estimated at some 10 tcf (280 bcm).

The duo previously bought into the exploration block licences that resulted in the discovery of Leviathan without the competition regulator's permission but Gilo had previously allowed the purchase on condition that the two sold stakes in two of their other smaller discoveries in the same East Mediterranean area, Karish and Tanin, which have combined reserves of 3 tcf.

However, Gilo told Noble and Delek executives at a Monday evening meeting that he had now decided their licence ownerships constituted a cartel and on Tuesday recommended a break-up of the control of the country's key gas reserves.

"The entry of Delek and Noble into Leviathan created a situation in which these groups control all of the gas reserves on the State of Israel's coast," the regulator said in a statement.

It had never been fully comfortable with the idea of allowing Noble and Delek to control both Tamar and Leviathan but felt it was acceptable to a long legal battle. Now (NYSE: DNOW - news) , it believes there will be competition that will lead to lower prices and that the issue may ultimately be decided in court.

Noble owns 39.66 percent of Leviathan. Delek Drilling and Avner Oil Exploration, both units of Delek Group, hold 22.67 percent each and Ratio Oil Exploration owns 15 percent.

Shares (Berlin: DI6.BE - news) in Delek Drilling were down 10 percent by 1315 GMT at 14.80 shekels while Avner was down 9 percent at 2.68 shekels and Ratio was down 10 percent at 0.33 shekel. Delek Group was down 13 percent at 952 shekels.

"It sends a very bad message for investors in Israel," said Noam Pincu, an analyst at the Psagot brokerage, adding it also may delay Leviathan's development significantly.

"Instead of creating competition, it will delay competition," he said.

The dispute over allowing the companies sole control over developing the gas field has been brewing for about three years and is a hot political topic ahead of a March election focussed on economic issues such as high living costs.

Liberal politicians who opinion polls suggest could stymie Netanyahu's bid for a fourth term, accuse his government of permitting tycoons an unfair monopoly over Israel's greatest natural resource.

The Israeli authority plans a hearing with the companies before making a final decision and analysts believe a settlement will ultimately be reached, although Noble and Delek could be forced to sell their interests in Tamar or Leviathan.

Pincu said one possible outcome could be that Noble and Delek are allowed to hold onto a share of Leviathan's gas earmarked for export but not the 60 percent that is destined for Israel's own use.

Noble said it would take all necessary action to protect its legal and legitimate rights.

Binyamin Zommer, Noble's manager in Israel, said the authority's decision "will cast a shadow over the future of the oil and gas industry in Israel and will impact Noble Energy's continued investment there."

Zommer said Noble, which along with its partners has invested $6 billion in Israel's oil and gas sector, remained committed to developing Leviathan, as soon as regulatory, commercial and financial conditions allow.

He also said Noble bought the Leviathan licence with Israeli government approval.

Yitzhak Tshuva, Delek's controlling shareholder, said he had risked a large amount of money to develop the oil and gas business and that a forced sale of Leviathan might harm agreements Israel has made with other countries.

Leviathan partners are in talks with Britain's BG Group (LSE: BG.L - news) , which wants to run a subsea pipeline from Leviathan to its 10 bcm a year liquefied natural gas export plant on Egypt's Mediterranean coast, and with Jordan's national electricity company.

Only the Palestinian Authority has so far committed to buying gas, agreeing a 20-year deal worth $1.2 billion. (Additional reporting by Dan Williams and Allyn Fisher-Ilan; Editing by Clara Ferreira Marques and Greg Mahlich)