The Israel Tax Authority and Woodside Petroleum Ltd. (ASX: WPL) are very close to an agreement that will allow the signing of the deal to acquire a quarter of the rights in the Leviathan natural gas field for $2.71 billion.
The pending compromise will bridge the gap between the sides that caused the cancellation of the signing ceremony two weeks ago over accelerated amortization: Woodside originally wanted to write down the full investment for the acquisition of the rights over a period of just three years, while the Tax Authority wanted the amortization over the gas field's lifespan, i.e. 30 years.
The differences between the sides remained wide even after Woodside CEO Peter Coleman visited Israel. Woodside was prepared for a 10-year amortization period, while Tax Authority was prepared for a 25-year period. In the past few days, a creative compromise was proposed, under which the investment will be amortized in line with the depletion of the gas field. This arrangement gives Woodside an incentive to bring forward gas sales from Leviathan in order to maximize the tax break.
A source involved in the talks said today that he believed that the compromise agreement could be signed within days, and possibly even before the Passover holiday that begins on Tuesday.
In addition to the main dispute over the accelerated amortization, Woodside had other reservations before the cancelled signing ceremony. It wanted the Ministry of Finance to promise "regulatory certainty", under which the company's rights would be protected from future changes in the fiscal regime, such as an increase in the royalties rate or Sheshinski tax. Woodside has apparently softened this demand, after it was made clear that in such cases, it would have the right to seek legal remedies.
It should be noted, however, that energy market sources believe that even if a deal is reached with the Tax Authority, there is no assurance that the owners of the rights in Leviathan will agree to sell rights to Woodside on the terms set out in the memorandum of understanding (MOU) signed in February in Australia. Since the March 27 deadline set in the MOU has passed without the signing of a final and binding agreement, the rights owners - Noble Energy Inc. (NYSE: NBL), Delek Group Ltd. (TASE: DLEKG), and Ratio Oil Exploration (1992) LP (TASE:RATI.L) - are released from their commitments and may seek to reopen some of the terms agreed in the MOU.
Published by Globes [online], Israel business news - www.globes-online.com - on April 10, 2014
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