Woodside foot-dragging sank Leviathan deal

Woodside wanted to delay development until all permits were obtained.

The desire of Woodside Petroleum Ltd. (ASX: WPL) to delay a decision on investing hundreds of millions of dollars in the development of the Leviathan gas field is the direct cause of the cancellation of the farm out deal with the partners in it. Sources inform ''Globes'' that the partners in Leviathan - Noble Energy Inc. (NYSE: NBL), Delek Group Ltd. (TASE: DLEKG), and Ratio Oil Exploration (1992) LP (TASE:RATI.L) - asked Woodside to commit to paying its share of the hundreds of millions of dollars they planned to spend this year to complete the gas field's development under the timetable they promised.

However, Woodside wanted to delay a decision on the expenditures until all the necessary permits were obtained, including an export license. The partners objected to this request, and warned that without the investment now, deals with customers in Israel, Cyprus, and other countries were liable to be lost. Leviathan's $5 billion development plan is based on a floating production, storage and offloading (FPSO) ship above the gas field to which customers in Israel, Cyprus, Turkey, and Egypt will be connected by pipeline. The partners in Leviathan reiterated that development must be completed no later than the fourth quarter of 2017.

Delek controlling shareholder Yitzhak Tshuva today reacted with equanimity to Woodside's announcement on Tuesday that it was cancelling its intention of acquiring 25% of the rights in Leviathan for up to $2.71 billion. "We are going full steam ahead to develop the gas field under the planned timetable," said Tshuva at the TASE opening today to mark the start of trading in the bonds issued by Delek units Avner Oil and Gas LP (TASE: AVNR.L) and Delek Drilling LP (TASE: DEDR.L) to finance their share of Leviathan's development.

Noble Energy chairman and CEO Charles Davidson responded similarly, saying, "While we have not been able to reach a mutually acceptable agreement with Woodside, we continue to move forward with our partners and the Israel government with plans to develop this world-class asset for the benefit of all stakeholders." He added, "Perhaps the most dramatic changes have been associated with the growth in the regional markets. The emergence of these regional markets, which are accessible through pipeline outlet, has pushed the need for LNG into a later phase of development versus our earlier plans."

Energy market sources told "Globes" that the partners in Leviathan feel a sense of relief about the cancellation, after the volatile and friction-filled negotiations.

In a statement to the Australian Stock Market today, Woodside CEO Peter Coleman said, "All parties have worked very hard to secure an outcome which would be commercially acceptable, but after many months of negotiations it is time to acknowledge we will not get there under the current proposal."

Despite the disputes about how to develop Leviathan were apparently the main cause of the breakdown of the deal, analysts opted to take satisfaction that Woodside decided not to enter a region full of geopolitical risk, like the Israeli market. Credit Suisse analyst Mark Samter said, "You would have wanted a very high hurdle rate for investment in Israel given the uncertainties that surround it."

Woodside's spokesman said that the company was prepared to resume talks in the future to acquire a stake in Leviathan if there were material changes to the investment conditions.

"Reuters" quotes Coleman as saying in April that the shift to export more of the gas by pipeline instead of LNG made it less worthwhile for Woodside to invest in on existing terms.

Published by Globes [online], Israel business news - - on May 21, 2014

© Copyright of Globes Publisher Itonut (1983) Ltd. 2014

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