Woodside Sees Israel Deal Alternatives With Decision in 2014

Woodside Petroleum Ltd. (WPL), Australia’s second-largest oil and gas producer, expects to decide in the first half of 2014 whether to complete a deal to invest in Israel’s Leviathan venture.

Woodside has expansion options beyond Leviathan, Chief Executive Officer Peter Coleman told analysts and reporters today on a call after the Perth-based company provided its 2014 outlook. Woodside remains in talks with the Leviathan partners, including Noble Energy Inc. (NBL), to bring the transaction to a close, he said.

Woodside’s purchase of a stake in Israel’s largest gas field has faced delays because of uncertainty over the nation’s export policy and discussion by the partners about alternatives to building a liquefied natural gas development. The Australian company targeted LNG exports from Israel when it agreed a year ago to pay as much as $2.3 billion to the companies.

“There’s still an opportunity for Woodside to create significant value within the joint venture,” Coleman said. “But I can assure shareholders we are focused on ensuring we have a commercial outcome that delivers value. It needs to be a compelling value case given the amount of investment that would be involved and the significance of the decision.”

Woodside lowered its 2013 spending estimate to $1.1 billion from its previous expectation of $2.3 billion, mainly because of deferred investment in Leviathan.

Woodside shares rose 0.5 percent to A$37.57 in Sydney trading, while Australia’s benchmark S&P/ASX 200 Index was little changed.

2014 Outlook

Sending the gas by pipeline to countries in the region may generate bigger returns for the partners than building an LNG plant, John Hirjee and Hugh Morgan, Melbourne-based energy analysts at Deutsche Bank AG, wrote in a Dec. 6 report.

“We expect Woodside’s ability to consummate a binding deal for Leviathan on accretive terms will be a key near-term driver, and see the possibility that Woodside could exit the JV,” the analysts said.

The value of Leviathan has increased with the potential to pipe gas to regional customers at lower cost, Noble CEO Charles Davidson told analysts last month, according to a transcript.

Woodside also gave an output forecast for 2014 that’s lower than analysts’ estimates. Woodside expects production of 86 million to 93 million barrels of oil equivalent for next year, lower than the 93.3 million barrel median estimate of five analysts surveyed this month by Bloomberg News.

Domestic customer contracts expiring at the North West Shelf LNG development, aging oil fields and asset sales are among factors that will impact production in 2014, Woodside said. The company is expanding overseas in countries including Myanmar after delays at proposed LNG ventures at home.

BP Executive

Investment next year is forecast to rise to between $2 billion and $2.4 billion, it said.

Michael Utsler, a former BP Plc executive who led the Gulf of Mexico recovery operation after the 2010 spill, has replaced Vince Santostefano as chief operations officer, Woodside said.

Woodside also narrowed its range for expected 2013 production to 86 million to 88 million barrels, from 85 million to 89 million barrels. The company earlier this year cut its production forecast for the year after an unplanned shutdown at Pluto, its A$15 billion ($14 billion) LNG project in Australia. The company said July 18 that Pluto had resumed. A delay in restarting its Vincent oil project also reduced output.

Woodside, which is scaling back in the Gulf, agreed to sell 20 percent of the Anadarko Petroleum Corp.-operated Power Play field and expects further transactions, it said.

To contact the reporter on this story: James Paton in Sydney at jpaton4@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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