"Leviathan deal will be finalized in next few months"

Woodside CEO Peter Coleman tells "Globes" he is concerned about government foot-dragging in approving gas exports.

"We expect the Leviathan agreement will be finalized during the next couple of months," Woodside Petroleum Ltd. (ASX: WPL) CEO Peter Coleman told "Globes" in his first interview with the Israeli media. He expressed concerns over the government's delay in deciding on a natural gas export policy, and over calls to change the Tzemach Committee's recommendations on gas exports.

In early December, Woodside signed a letter of intent to acquire 30% of the rights to Leviathan with its current owners, Noble Energy Inc. (NYSE: NBL), Delek Group Ltd. (TASE: DLEKG), and Ratio Oil Exploration (1992) LP (TASE:RATI.L) for $1.25 billion. The bulk of the payment will be paid when the deal is finalized, after the Tzemach Committee's recommendations are approved.

"Globes": You decided to sign the letter of intent even before the Tzemach Committee conclusions were approved by the government. Was it based on the belief that they will approved even though the elections were imminent at the time?

Coleman: "Yes, it was. We actually felt that the process the Tzemach Committee went through was a very good one. They in fact spoke to us by telephone before they finalized their report, so we had have some input into that, but we felt that the recommendations were quite balanced, although the percentage of gas reserved for domestic use is high on a world scale. But we felt that we could put together an export project around the remaining quantity of gas. That gave us some confidence in moving forward at that point in time. We knew the government was going into elections, so we respected that process. Now a government's formed. It's time now for us to get back in and ensure our voices are heard, so the government's considering whether to pick up the report as is, or whether, as some people would like, to make some modifications to it."

How much did your meeting with Prime Minister Benjamin Netanyahu influence your decision?

"We were pleased with the meeting we had with the prime minister. It did give us some comfort that Israel was looking very broadly with respect to the use of its gas resources and understanding what was the best way in the long term to ensure that it's utilized for the best of the Israeli people."

Four months have passed since the meeting, and nothing has happened. Are you in any way less certain about the final outcome that you had been previously?

"I don't think the length of time has been helpful at all. We felt the process was going to provide certainty. Now there are people questioning the outcome of that particular process."

Coleman added, "It's not helpful from the point of view that the world is moving on. It's becoming very, very competitive. If you look at the resources now in the US that are being developed around shale gas, if you look at what's happening in East Africa, and let's put it into context. A year ago people were just starting to talk about Africa. A year before that people hadn't - they're weren't talking about it at all. So two years ago, East Africa wasn't being spoken about, yet we now know that in Mozambique alone there's about a hundred tcf of gas and more gas being discovered.

"So it is a competitive world and whether it's LNG or other exports, they require certainty in the marketplace, because they are very long term investments. The design and engineering can take 3-4 years. If we're doing well, to be quite honest. And then it takes another 6-7 years to build it. So you're starting to talk about markets that are 8-10 years from now and trying to position yourself so you can enter that marketplace. That requires a lot of certainty." Coleman noted that the investments amounted to billions of dollars on projects that could take 40 years.

Criticism of the Tzemach Committee's recommendations began the day they were published. Since then, there has been a string of dry holes, which have led to calls for reviewing the recommendations and increasing the proportion of gas reserved for domestic consumption at the expense of exports.

"It's a fact that there is uncertainty in drilling exploration wells and I understand some people have questioned whether the reservation policy is too generous, given the fact of the recent unsuccessful wells. I would put to you a much different view on that. I would suggest quite strongly the best way to deal with that in fact is to encourage more exploration rather than discourage exploration… If the gas cannot be exported, then there's no clear path to monetization because the domestic market has enough gas for many, many years. The only way to monetize is through export contracts."

The Tzemach report advises the government to keep a reserve to meet Israel's needs for 25 years, and to export the rest. In the absence of new discoveries, there are calls to keep half of the gas reserves for domestic use.

"The range is typically around 15%. We say 15% here in Western Australia, and in fact I think we're a very good analogue for what Israel is dealing with at the moment. I have seen it go up to 30% in some places. 50% I have not seen before. Understanding Israel's quite valid concerns about preserving resources for the future, I could understand why 50% was arrived at in that regard. I would put back to people who are concerned about that, that the very best place to find hydrocarbon or gas is where you've already found it. And the best thing to do in fact is to encourage exploration and further exploration." He added that the Levant basin is full of natural gas, and exploration has only just begun.

Coleman says that the first offshore gas discoveries in Western Australia were made 30-40 years ago, and that for years, the state and federal governments invested heavily in laying pipelines and building infrastructures. Woodside brought in oil majors as partners for their capital and drilling know-how. "We're on the way to become the world's biggest LNG exporter, and we reserve 15% of gas for domestic use. I'm talking about a 40-year process, but for this happen, Israel must also encourage exploration and development," he adds.

Why were you interested in the eastern Mediterranean for Woodside?

"We were looking for somewhere where we could bring our capabilities to create additional value to a joint venture, and so as we looked at Leviathan, we were also attracted by the quality of the Leviathan resource and it's a world-class resource by any measure. And we felt that given the potential for export from Leviathan, then Woodside had capabilities not only in development and production, but also in our marketing activities, and particularly in LNG and pipeline gas. So that was the attraction for us, and then of course with the partners in Leviathan that we felt we could work with very well, particularly Noble Energy and the local partners as well."

You believe that you can find markets for Leviathan even in East Asia, even though the distance is far greater than from Australia?

"I absolutely do. We think we can get Leviathan gas east of India, and certainly it could go into China. There are other options for it to go into Europe, but there's a lot of head-to-head competition in Europe. Our preference is to establish new relationships with existing Woodside customers in Asia and to continue to build on that. But there's a lot of competition out there. Leviathan will be competing with gas coming out of East Africa, and so the earlier that we can get certainty around our export options from Leviathan, the earlier we can get into market and secure those customers."

Australia Israel Chamber of Commerce executive director Tel Aviv Paul Israel, who has provided support for Woodside's Leviathan deal since initial talks began, said, "Woodside is a natural partner for the Israeli industry. They are one of the world's most experienced LNG operators, their involvement here increases the chance that the gas will be exported in a most effective manner ensuring maximum benefit to Israel and its citizens."

Woodside is Australia's largest energy company and the world's largest non-government liquefied natural gas (LNG) exporter, after the government-owned companies of Qatar, Indonesia, and Malaysia. The company has been developing huge offshore projects in Western Australia, centered on the Karratha LNG plant, which has an annual production capacity of 16.3 million tons. The company also began operating the 4.3-million ton capacity Pluto LNG plant last year, after an investment of AU$14.9 billion. The company also owns floating production, storage and offloading (FPSO) ships, which may be used at Leviathan. It is involved in the construction of the Sunrise floating LNG (FLNG) facility in East Timor; an FLNG facility is under construction for the Tamar gas field.

Earlier this month, Woodside cancelled plans to build a third LNG plant in Australia, Browse, after its cost escalated to $45 billion, rendering it not worthwhile. One energy expert believes that rising prices in Australia was why Coleman was interested in expanding the company's operations to new markets, including Israel.

Did you face political pressure to stay out of Israel?

"The answer to the question is in short: no. In fact there was encouragement to continue to strengthen the relationship that we have with Israel for many, many years now. Our relationship with Israel - as you're aware it's a very strong relationship and it's going back to the formation of Israel - and it's one that in fact the Australian people and the Australian government hold very dear. I would tell you from both sides of government in Australia, including current and former prime ministers, who made representations on Woodside's behalf to introduce us into the country."

Published by Globes [online], Israel business news - www.globes-online.com - on April 23, 2013

© Copyright of Globes Publisher Itonut (1983) Ltd. 2013

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