Australia's Woodside Petroleum Ltd. (ASX: WPL) has agreed a memorandum of understanding (MOU) to join the Leviathan field. The protracted negotiations were affected by the drawn-out regulatory developments in Israel.
After the deal is completed, Woodside will hold 25% of the rights of the Leviathan field for a payment and commitment to royalties worth $2.71 billion, giving the field a value of $10.8 billion. Also agreed as part of the deal is that the partners will be paid a special "bonus" from any revenue that Woodside will receive from the sale of oil (if discovered) and if the natural gas reserves in the field rise above 20 trillion cubic feet (TCF).
The MOU gives Woodside exclusive rights to continue talks and complete the details of the deal by March 27.
After Woodside joins the partnership, Delek Group Ltd. (TASE: DLEKG) energy exploration units Avner Oil and Gas LP (TASE: AVNR.L) and Delek Drilling Limited Partnership (TASE: DEDR.L) will each own 16.93% of the rights in the field, Noble Energy Inc. (NYSE: NBL) will hold 30%, Woodside 25%, and Ratio Oil Exploration (1992) LP (TASE:RATI.L) 11.12%.
Woodside has agreed to increase its initial payment to the existing Leviathan partners to $850 million from the $696 million specified in the initial letter of intent. A further $350 million will be payable when the investment decision is made to develop the field, which will cost an estimated $8 billion, and another $350 million will be payable when exports of gas from the field commence. Altogether, Woodside will pay the other partners $1.35 billion in the course of gas exports from Leviathan. It has also undertaken to pay a 2.5% royalty to the partners on sales of oil, if oil is discovered beneath the gas reservoir. Exploratory drilling for oil is due to begin the second half of this year.
One of the issues that delayed completion of the negotiations on the deal was Delek Group's demand that Woodside should recognize other options for exporting gas from Leviathan besides LNG (liquefied natural gas). Woodside, whose expertise lies in LNG, will operate the gas liquefaction project, but at the same time the Leviathan partners are conducting negotiations to sell gas via pipeline to customers in Turkey, Egypt and Jordan, and have already signed an agreement for the sale of gas to the Palestinian Authority.
The initial terms being negotiated in December 2012 were a 30% stake for up to $2.3 billion. Macquarie Equities analyst Adrian Wood commented to Reuters, "From a Woodside perspective it's clearly not good news. You're paying more to get less. And strategically this is no longer such a strong fit because it's less LNG, which is what Woodside wanted.
"The Israeli government is looking to use its new found resource wealth to exercise foreign policy. That's a potential risk for the joint venturers that maybe this becomes a political weapon rather than a return-generating development," Wood added.
Published by Globes [online], Israel business news - www.globes-online.com - on February 7, 2014
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