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Woodside scraps $2.6B Israeli gas deal after talks fail

An engineer walks in the engine room below deck on a tanker carrying liquefied natural gas in the Mediterranean, some 10 km (6 miles) from the coastal Israeli city of Hadera January 22, 2014. (REUTERS/Baz Ratner)

Woodside Petroleum Ltd., Australia’s second-biggest oil and gas producer, scrapped an agreement to buy a quarter of Israel’s largest natural gas field for as much as $2.6 billion after talks to complete the deal collapsed.

“Negotiations between the parties failed to reach a commercially acceptable outcome,” the Perth-based company said Wednesday in a statement. Woodside had been in talks with a group including Noble Energy Inc. to invest in the venture in Israel’s Leviathan gas field.

The deal would have put Woodside in the middle of Israel’s nascent natural gas industry as the company’s proposed projects in Australia face delays. Woodside last year ditched plans to build an onshore processing plant in Western Australia to exploit its Browse gas resources. The company estimated that proposal would have cost more than AUS $80 billion ($74 billion).

“Leviathan felt like Browse,” Evan Lucas, a market strategist at IG Ltd. in Melbourne, said Wednesday. “It was going to be hugely costly for a very low rate of return.”

Woodside rose 0.8 percent to close at AUS $41.23 in Sydney trading, while the benchmark index climbed 0.1 percent.

Woodside will probably look for acquisitions to boost production as the world’s biggest oil and gas producers sell assets, Nik Burns, a Melbourne-based analyst at UBS AG, said Wednesday. The company may also consider giving back $1 billion that it would have set aside for Leviathan this year to shareholders through a special dividend, he said.

The company faces growing pressure to make an acquisition to provide growth, according to a Macquarie Group Ltd. report last week. While a bid for rival Oil Search Ltd. can’t be ruled out, Woodside will probably look at smaller acquisitions, Macquarie analysts wrote in the May 14 report.

Oil Search, Exxon Mobil Corp.’s partner in a natural gas project in Papua New Guinea, rose 1.4 percent to AUS $9.14.

“Woodside has made it clear they are looking for offshore overseas assets,” IG’s Lucas said. “They want to diversify their portfolio away from Australia and Oil Search is a clear standout.”

The move to pull out of the Leviathan agreement comes 17 months after Woodside signed an initial accord to acquire part of the project. The discussions dragged on amid concerns over possible changes in Israeli tax and regulatory policies, while the focus of Leviathan shifted from production of liquefied natural gas, Woodside’s specialty, to pipeline shipments.

Noble is moving ahead with plans to develop Leviathan, the Houston-based company said in a separate statement. The emergence of regional markets accessible by pipeline “has pushed the need for LNG into a later phase of development versus our earlier plans,” Chief Executive Officer Charles Davidson said.

Woodside agreed earlier this year to pay the Leviathan partners, including Delek Drilling LP, Avner Oil Exploration LLP and Ratio Oil Exploration LP, an initial $850 million.

 
A version of this article appeared in the print edition of The Daily Star on May 22, 2014, on page 6.

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Summary

Woodside Petroleum Ltd., Australia's second-biggest oil and gas producer, scrapped an agreement to buy a quarter of Israel's largest natural gas field for as much as $2.6 billion after talks to complete the deal collapsed.

Woodside had been in talks with a group including Noble Energy Inc. to invest in the venture in Israel's Leviathan gas field.

The deal would have put Woodside in the middle of Israel's nascent natural gas industry as the company's proposed projects in Australia face delays.

While a bid for rival Oil Search Ltd. can't be ruled out, Woodside will probably look at smaller acquisitions, Macquarie analysts wrote in the May 14 report.

Woodside agreed earlier this year to pay the Leviathan partners, including Delek Drilling LP, Avner Oil Exploration LLP and Ratio Oil Exploration LP, an initial $850 million.


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