-- Woodside to buy 30% stake in Leviathan field offshore
Israel
-- Will make initial US$696 million payment, plus further staged
payments
-- Leviathan is estimated to contain about 17 trillion cubic
feet of gas
(Adds further detail on the deal throughout.)
By Robb M. Stewart
MELBOURNE--Woodside Petroleum Ltd. (WPL.AU) has struck a deal
worth more than US$1.2 billion to take part in the development of a
massive gas find off the shore of Israel, extending the Australian
oil and gas company's reach beyond its home market.
The deal positions Woodside as operator of any liquefied natural
gas, or LNG, operations for the Leviathan field in the
Mediterranean Sea, which is estimated to contain about 17 trillion
cubic feet of recoverable natural gas, the company said Monday.
Woodside has been seeking to broaden its portfolio with
exploration acreage overseas as costs for Australian oil and gas
developments continue to jump, with a number of major energy
companies including Woodside competing to build facilities that
could ship LNG north to Asia.
"This is a tremendous transaction for us," Chief Executive Peter
Coleman said on a conference call with investors and analysts,
adding the asset offshore Israel is "world-class, not just in size
but in the quality of the reservoir."
Woodside said it will make an initial payment of US$696 million
upfront to Noble Energy Inc. (NBL) and its partners for 30% stakes
in two petroleum licenses that contain the Leviathan field. Further
payments of US$200 million will be made when laws are in force
allowing LNG exports from Israel and US$350 million when a final
decision is made on an LNG development, the company said. If the
partners do begin producing LNG, Woodside would make
revenue-sharing payments of up to US$1 billion a year if a price
for the fuel is achieved above an agreed level.
Houston-based Noble Energy, which will remain the primary
operator of the field, separately said each of the existing
partners in the Leviathan field--including Delek Drilling LP
(DEDR.L.TV), Avner Oil Exploration LP (AVOGF)) and Ratio Oil
Exploration (1992) LP (RATI.L.TV)--will sell some of their interest
in the development to the Australian company.
"The entry of Woodside will bring additional international
diversity to the eastern Mediterranean area, thus highlighting the
global importance of the Levant Basin," said Charles Davidson,
chairman and chief executive of Noble Energy.
Analysts generally welcomed the price Woodside has agreed to pay
for the interest in the gas project, which Macquarie estimated
worked out initially to about US$0.80 a barrel of oil equivalent,
but said that reflected the risks. Analysts had earlier speculated
that the Arab League's continuing boycott of Israel and other
political factors would likely prevent some major international
petroleum companies from working on Leviathan due to connections
with large oil-producing countries of the Middle East and Persian
Gulf.
"Many unknowns stand between Woodside and potential LNG revenue
from this acquisition," Macquarie said in a research report,
pointing to a lack of an export license, uncertainty over the
domestic need for gas in Israel and security risks in the
region.
Mr. Coleman said the company had carefully assessed the risks
and looked closely at Noble Energy before the agreement in
principle was signed, and it found they were manageable.
He said while the gas market in Israel is relatively new and has
recently struggled with disruptions to its pipeline from Egypt,
there is a push away from coal-fired power generation and demand is
expected to grow.
"We have a proven track record of safe and reliable operations
in Australia and being selected as the Leviathan joint venture's
preferred partner in a competitive bidding process demonstrates the
value of our LNG development capabilities," Mr. Coleman said.
Noble Energy has been operating offshore Israel since 1998, but
Leviathan is the company's biggest exploration success. It has been
studying export options, including both LNG and a pipeline, and has
said it has offered limited temporary financing to its existing
partners to ensure a timely completion for the first phase of
development.
It is targeting initial production to the domestic gas market
from Leviathan in 2016, but first sales from the nearby Tamar field
within six months. Tamar has an estimated resource of 9 trillion
cubic feet of gas.
The deal with Woodside is subject to a number of conditions,
including the completion of due diligence and necessary government
and regulatory approvals. If it goes ahead, Noble Energy's interest
in the Leviathan venture will fall to 30% from 39.66%. Delek and
Avner will each own 15%, down from 22.67% currently, and Ratio's
interest will drop to 10% from 15%.
Woodside in October said it would explore for oil and gas off of
Myanmar with Daewoo International, and earlier this year it bid for
gas exploration blocks off Cyprus's Mediterranean shores.
Write to Robb M. Stewart at robb.stewart@wsj.com
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