Woodside to Purchase 30% of the Leviathan for $3 Billion
The Leviathan partners, Delek Group Ltd. Ratio Oil Exploration and Noble Energy, are about to fly to Australia for the signing of a USD 3 billion deal with Woodside Petroleum Ltd, according to Israeli media sources. Under the original terms of the MOU signed in December 2012, Woodside would pay around USD 2.5 billion in exchange for 30% of the rights in the Leviathan. Woodside would bring to the Leviathan its expertise in LNG and allow the natural gas from the Leviathan field lying beneath 1700 m of water, 135 km off the coast of Israel and containing up to 18 Tcf of natural gas to be shipped to international destinations such as Europe and East-Asia.
The original deal was expected to be finalised within two months but was delayed several times due to the lengthy debates that preceded the formulation of Israel’s export policy. Israel was divided between those who supported exports and those who believed that the country should save all of its newly discovered natural gas for domestic uses instead. The Tzemach’s Committee’s original recommendation to export around half of the gas and save the other half at home was heavily criticised. Israel’s years of energy dependence and vulnerability were the main considerations behind the opposition to exports.
Benjamin Netanyahu’s cabinet took a decision in June 2013 that reduced the recommended export quota to 40% in an attempt to achieve an equilibrium between the two equally important outcomes from natural gas discoveries: energy security/independence and the monetization of hydrocarbon riches to boost the economy. The decision did not receive the unanimity and was contested in front of Israel’s Supreme Court who - after several delays - rejected the petition and ratified the June 2013 cabinet decision.
The revised price tag finds its explanation in Israel’s change of export policy. The country seems to be moving away from LNG exports and closer to the pipeline option. Although the pipeline scenario offers less flexibility in terms of reaching out to potential customers, the costs involved would be less than those needed to develop an LNG facility. Therefore, the Leviathan gas field would be worth more (a JP Morgan analysis suggests that the reduction in export costs by opting for a pipeline instead of LNG would increase the value of the field by as much as USD 600 million to USD 1 billion). Details such as when capital gains tax are to be paid are still pending further discussions between the Israel Tax Authority, Woodside and the Leviathan partners.
Karen Ayat is an analyst focused on energy geopolitics in the Eastern Mediterranean. Email Karen on email@example.com. Follow her on Twitter: @karenayat