Woodside May Scrap $1 Billion Leviathan Gas Field Investment

File image of an offshore drilling rig off Malta, (c) Shutterstock/Angelo Giampiccolo

July 30 (Bloomberg) — Woodside Petroleum Ltd., Australia’s second-biggest oil and gas producer, may pull out of a deal to invest in Israel’s largest natural gas field, freeing up as much as $1 billion to return to investors, Deutsche Bank AG said.

“Woodside must be considering its position,” John Hirjee, a Melbourne-based analyst at Deutsche Bank, said today by phone as proposed limits to Israel’s natural gas export levels increased speculation that Woodside will quit the Leviathan project.

Perth-based Woodside agreed in December to pay as much as $2.3 billion for a stake in Leviathan to tap both the domestic gas and liquefied natural gas markets. In June, Prime Minister Benjamin Netanyahu said Israel will cap exports of its natural gas resources at 40 percent, less than the 50 percent recommended last year by a government committee.

“Reduced export levels from Leviathan compared to Woodside’s initial expectations, along with uncertainty around preferred export development concept by the joint venture,” may see the company walk away from the deal, Commonwealth Bank of Australia analysts Luke Smith and Lachlan Cuskelly said in a July 26 note.

Daniel Clery, a spokesman for Perth-based Woodside, declined to comment on Leviathan speculation.

Initial Payment

Woodside agreed to make an initial payment of $696 million to the project partners Noble Energy Inc., Delek Drilling LP, Avner Oil Exploration LLP and Ratio Oil Exploration (1992) LP. It also agreed to give the partners $200 million once laws permitting LNG exports come into force and $350 million when a final investment decision on an LNG project is made.

“Closing of these agreements has been delayed primarily due to the uncertainty over exports,” Noble Chief Executive Officer Charles Davidson told analysts on a call last week. “Hopefully we are nearing closure on that issue.”

While the Israeli policy limits exports at 40 percent, larger fields such as Leviathan would be able to export a higher amount, Davidson said on the call.

Woodside decided in April to return about $520 million to investors in dividends after scrapping the Browse LNG proposal. Woodside also signaled a delay to the next stage of its Pluto LNG project in Australia, ending talks with companies to obtain gas supplies needed for expansion, the company said April 18.

“One way to alleviate concern about lack of growth” options for Woodside would be to announce a share buyback should the Leviathan deal collapse, Deutsche Bank’s Hirjee said.

– James Paton, Copyright 2013 Bloomberg.