The paper was prepared for a planned Knesset (parliament) discussion on amending Israel's Petroleum Law, proposed by Knesset member Carmel Shama.

Shama also proposes raising royalties on oil and gas discoveries in Israel to 16% from 12.5%, and the use of tenders to award exploration licenses. At present the country's Petroleum Commission awards licenses at periodic sessions, but experts have said this process is open to manipulation.

The research paper said Israel's total tax rate on oil and gas producers comes to 40% and estimated the value of the country's gas reserves at $40 billion.

"The figures indicate that only in Britain is the government's share of gas and oil revenues less than 40%," the paper said.

It added that the low tax rate had been an attempt to encourage investment in oil exploration when the sector was still seen as having low potential, before a recent series of offshore gas discoveries. The report concluded that there is no longer a need to give special encouragement to investment in exploration.

The Knesset study comes at a time of intensifying debate over the taxation of Israel's oil and gas exploration industry.

Last month, the finance ministry established a committee to study various options for the sector, including raising taxes and royalties. The committee will present its recommendations by August. However, Prime Minister Benjamin Netanyahu has put pressure on the finance and justice ministries to limit the scope of the committee to focus solely on future licenses, not existing ones.

The US has also expressed concern about a possible change in Israel's tax policy for the upstream oil and gas sector, with White House officials and US senators having brought the matter up with Netanyahu's office, sources from both countries said last week.

The concern is that a change in tax policy would affect US company Noble Energy, which is involved in the Tamar and Dalit discoveries off Israel's northern Mediterranean coast, the sources said.

According to Israeli press reports last week, a senior US diplomat based in Tel Aviv wrote a letter to the finance minister warning that unless current leases and licenses are exempt from the scope of the committee's recommendations, it could be undermine confidence in the stability of Israeli fiscal policy and deter international investment.

--Neal Sandler, newsdesk@platts.com