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Woodside to Pay Up to $2.3 Billion for Israel Natural Gas

Woodside to Pay $696 Million for 30% Stake in Leviathan Field
The Woodside Petroleum Ltd. logo is displayed atop the Woodside Plaza building, which houses the company's headquarters, in the central business district of Perth, Australia. Photographer: Sergio Dionisio/Bloomberg

Woodside Petroleum Ltd., operator of Australia’s Pluto liquefied natural gas project, will pay as much as $2.3 billion for a stake in Israel’s largest natural gas field to partners including Noble Energy Inc.

Australia’s second-largest oil and gas producer will buy a 30 percent share in the Leviathan field for an initial $696 million from Noble Energy, Delek Drilling LP, Avner Oil Exploration LLP and Ratio Oil Exploration (1992) LP, the Perth-based company said today in a statement. The first gas output for Israel’s market is expected in 2016, it said.

The agreement will allow Woodside to manage any LNG development at a project estimated to contain 17 trillion cubic feet of gas, putting the company at the heart of Israel’s nascent gas industry. Woodside’s challenge would be to run the project amid the region’s political instability, said David Lennox, an analyst at Fat Prophets in Sydney.

“There may have been better opportunities elsewhere, albeit at higher prices,” Lennox said. “The rewards really come with oil and this is not really a proven oil zone. There’s also a potential security risk. That region isn’t going to have absolute peace.”

The shares of Woodside increased 0.9 percent to A$34.11 at the close in Sydney, taking their gain this year to 11 percent, in line with the key Australian index’s 12 percent advance.

More Payments

Woodside will give the partners $200 million once laws permitting LNG exports from Israel come into force and $350 million when a final investment decision on an LNG project is made. The accord also provides for potential annual LNG revenue sharing payments capped at $1 billion and a payment of as much as $50 million toward drilling a deep water exploration well, Woodside said.

Woodside, seeking to broaden its portfolio of oil and gas assets to meet growth targets, is studying expansion options in the Eastern Mediterranean, Southeast Asia and the Americas. Noble, which said in December 2010 Leviathan was the largest discovery in its history, will be the upstream operator, Woodside said.

“Leviathan is truly a world-class field that offers significant development opportunities through the growing Israeli domestic gas market and Asian and European export markets,” Woodside Chief Executive Officer Peter Coleman said on a conference call today. The security risk is “manageable,” he said.

Houston-based Noble Energy and its partners have discovered about 35 trillion cubic feet of gas resources in the Eastern Mediterranean, Chairman Charles D. Davidson told reporters last month in London.

‘Extensive Experience’

“Their extensive experience in LNG projects will further unlock value in the world-class Leviathan resource,” Davidson said in a separate statement today. “The entry of Woodside will bring additional international diversity to the eastern Mediterranean area, thus highlighting the global importance of the Levant Basin.”

After the completion of the pact, which is subject to government and regulatory approvals, Noble Energy’s share in Leviathan will drop to 30 percent from 39.66 percent, Noble Energy said in its statement.

“Woodside introduces to Leviathan the full package necessary to develop Leviathan to the local market and to develop LNG projects to export gas from offshore Israel,” Yossi Abu, chief executive officer of Hertzliya Pituach, Israel-based Delek Drilling, said by phone today. “It brings to the table LNG expertise, financial strength, and access to the premium market of LNG in the world, the Asian market.”

Woodside, whose A$15 billion ($15.6 billion) Pluto venture started production in April, is among LNG project developers in Australia facing increasing construction costs and rising supply competition. The company said Oct. 19 it will form a partnership with Daewoo International Corp. in a venture off the coast of Myanmar and joined a group earlier this year that bid on gas exploration rights off Cyprus.

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