Woodside commits to smaller stake in Israel’s Leviathan field

07 February 2014 12:47 Source:ICIS

Woodside Petroleum has signed a non-binding memorandum of understanding (MoU) to acquire a 25% stake in the Leviathan gas field in Israel for $2.55bn, the Australian oil and gas producer confirmed on Friday.

The stake is smaller than the 30% stake orginally agreed between Woodside and the Leviathan partners, but is more expensive than the $2.3bn price originally announced due to the field’s increased gas and oil prospects.

The Leviathan field is currently estimated to hold around 18.9 trillion cubic feet (tcf) of recoverable gas reserves, more than the 17tcf originally estimated in Woodside’s initial in-principle agreement reached in December 2012.

Woodside and its joint-venture partners – US-headquartered operator Noble Energy, along with Israel’s Delek Drilling, Avner Oil Exploration and Ratio Oil Exploration - will hold further talks with the aim of finalising a fully termed agreement by 27 March, the Perth-based company said.

Woodside wanted to complete the deal earlier, but decided to wait until the Israeli government finalised its natural gas exports policy. It has since confirmed that up to 40% of natural gas produced in Israel can be exported, although the partners have yet to take a final decision whether to develop the field as an LNG development or via pipeline exports.

Under the terms of this latest agreement, Woodside agreed to pay $850m upon completion of the transaction under a fully-termed agreement. It will then pay another $350m once a final investment decision for an LNG development is reached, or payments of up to $350m on predetermined export project milestones.

Woodside will also pay 5.75% of its well head export gas revenue, capped at $1.3bn, after at least 2tcf have been exported from the Leviathan field.

In addition, a royalty of 2.5% will be paid on commercial oil production after payback of development costs.

A one-off payment of $50 million will be also be paid after production of 4tcf if the estimated total gas resource is assessed to be at least 20tcf.

The MoU is also conditional upon tax and regulatory approvals from the Israeli government and contemplates the supply of domestic gas to Israel, LNG exports and supply to neighbouring countries.

Once the transaction is completed, Noble Energy will hold a 30% working interest in the Leviathan project. It will also continue as the project’s upstream operator.

Woodside will hold a 25% stake and be the operator of any LNG development in the field, while Delek Drilling and Avner Oil Exploration will hold a 16.94% stake each, with Ratio Oil Exploration holding an 11.12% stake. Hairul Borhan

By Hairul Borhan