Woodside faces Leviathan doubts

Woodside's partner in the giant Israeli oilfield has raised doubts about field's gas exports.

Woodside Petroleum Ltd's potential operating partner in a $US2.2 billion ($A2.34 billion) deal to enter Israel's offshore Leviathan gas field, Noble Energy, says LNG exports are not as appealing as they once were, raising further questions over whether Woodside will have to pay more to enter the giant oilfield.

Last December, Perth-based Woodside signed a non-binding deal to enter the undeveloped Leviathan field and operate and develop an LNG plant.

The deal has been held up by failure to settle Israel's gas export policy, but there has also been a greater emphasis placed by the existing partners on the potential to send more of the gas expected to be exported (about half will be saved for domestic use) to nearby countries via regional pipelines.

In a presentation to a Houston conference, Noble president David Stover confirmed the appeal of LNG had dwindled.

"When you were looking at the additional delivery piece (exports) before, I think the focus was all on LNG," Mr Stover said. "I don't think that's the case anymore."

He said that while he thought LNG would still play a role, this was not seen as being as critical as it had been previously.

"The eye-opening piece has been the regional opportunity that exists over there, opportunity in neighbouring countries or the need for gas in the area.

"Then you have a longer-term LNG potential - whether it's floating LNG or an onshore facility that's in either of the countries, or that's combined between countries, between Israel and Cyprus."

The potential options to develop and get the gas to market are numerous.

They also include an LNG plant in Egypt and pipelines to Turkey and Jordan.

Pipelines are much cheaper than an LNG plant for local exports, so reduced LNG could mean the partners see the project as worth more and Woodside's LNG expertise as less valuable.

Mr Stover also said there were existing LNG facilities in the area that needed a lot of gas, which could provide opportunities.

"Is there a way to tie into that that doesn't require a huge upfront investment in that portion of the business?" he said.

Woodside chief Peter Coleman said recently that while there had been talk of pipeline exports, he thought the increased risk associated with tying the gas to just one destination, especially in that region, could be a deterrent.

Woodside has a non-binding agreement to take a 30 per cent stake in Leviathan through a $US696 million upfront payment and a $US200m payment when Israel's gas policy, which is now held up in the High Court, is confirmed. After this it has agreed to pay $US350m when a final investment decision is made and, dependent on LNG pricing, extra payments of up to $US1bn.

The Australian

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles