Investment by Energy Giant Woodside in Leviathan Gas Field Now Unlikely

Woodside’s offer less attractive following increased valuation of Leviathan due to possibility of exporting natural gas by pipeline to Turkey.

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Citing changed regional politics, local analysts expressed increasing doubts Thursday that Australian energy giant Woodside Petroleum would close its original deal to buy 30% of the rights to the Leviathan natural gas field.

Woodside reached a memorandum of understanding with the field’s partners in December 2012 to purchase 30% of the rights to Leviathan’s natural gas for $1.5 billion. Under the proposal, Woodside would liquefy the natural gas and ship to destinations around the world.

Gil Bashan, IBI Investment House energy analyst, said Wednesday that the Woodside deal, which values the Leviathan field at $5 billion, was no longer relevant to the field’s partners, Delek Group, Noble Energy and Ratio Oil Exploration. Bashan placed the current value of the Leviathan field at $6.9 billion.

“During the height of the crisis [in Israel’s relations] with Turkey and the revolution in Egypt, it appeared that liquefying the natural gas with the help of Woodside was the single reasonable option,” said Bashan. “The tensions with Turkey have subsided and the government in Egypt has changed again, bringing exports to these markets back on the table.” He added that since the memorandum of understanding with Woodside was signed, the size of natural gas reserves in the field has been revised upwards by 2 trillion cubic feet to 18.9 trillion cubic feet of gas.

Bashan said there were now three options regarding the Woodside deal. One was that the value of the deal would be adjusted upwards to reflect the economic value of exporting the natural gas by pipeline to countries in the region. Already half a year ago, TheMarker revealed that Leviathan partners would ask Woodside for a “Turkish premium,” and last month reported that the partners had asked Woodside to increase its offer to $2.5 billion. A second option would be renegotiating the terms of the deal regarding the ownership of concession rights or division of work. The last option would be canceling the deal.

Leumi Capital Markets analyst Ella Fried, who met with the management of Delek Group subsidiaries Delek Drilling and Avner Gas & Oil Exploration, said that the Woodside deal was no longer crucial to the development of the field due to the possibility of exporting natural gas by pipeline.

“There is a real chance that the Leviathan partners are capable of independently carrying out the development [of the field],” said Fried. She added that while there were clear advantages to bringing in a major international partner like Woodside to help develop the field, exporting natural gas by pipeline to countries in the region presented the best option if the deal with Woodside fell through.

Last December’s agreement with Woodside was supposed to be completed within two months, but the failure of the Israeli government to clarify its policy on natural gas exports - the key to Woodside’s participation in Leviathan - held up the deal. When the government did finally set its export policy, the Australian company balked at paying the first milestone payment of the agreement until it was clear that the High Court of Justice would not overturn the government’s decision. The court ultimately rejected petitions filed against the government’s decision in October.

Drilling at the Leviathan natural gas field off the Mediterranean shore. Credit: Courtesy Albatross

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