Woodside Pullout From Leviathan Final

(Reuters) -

Woodside Petroleum said it would welcome future discussions on joining Israel’s Leviathan natural gas project but only if the investment conditions are significantly changed, after announcing Tuesday it has ditched long-awaited plans to take a stake in Israel’s flagship gas project.

“Providing there are material changes to the current investment conditions, we would welcome future discussions,” a Woodside spokesperson said in a statement emailed to Reuters.

Woodside, Australia’s top gas producer, was expected to buy a stake worth up to $2.7 billion, but decided against the move after failing to resolve a tax dispute.

Woodside’s decision to end an agreement to buy a 25 percent stake in the project leaves the venture without the expertise in liquefied natural gas (LNG) that was key to helping Israel expand its gas export options beyond the Middle East to Asia.

“All parties have worked very hard to secure an outcome which would be commercially acceptable, but after many months of negotiations it is time to acknowledge we will not get there under the current proposal,” Woodside Chief Executive Peter Coleman said in a statement to the Australian stock exchange.

Leviathan, which holds 540 billion cubic meters (19 trillion cubic feet) of gas reserves, was seen as critical to Woodside’s growth prospects amid delays in bringing on new production from its assets closer to home.

“While Woodside’s commitment to growth is strong, even stronger is our commitment to making disciplined investment decisions,” Coleman said.

The market applauded the move to abandon a project in a region fraught with geopolitical risk and in a country that has never developed a gas field, with Woodside’s shares jumping as much as 1.4 percent on the decision.

“You would have wanted a very high hurdle rate for investment in Israel given the uncertainties that surround it,” said Credit Suisse analyst Mark Samter.

“We think it’s an incredibly big positive for the management team, given the lack of obvious current other growth options, to be disciplined to walk away from it when it didn’t fit the bill.”

Woodside left the door open to renegotiating a deal with the four stakeholders in the project: Texas-based Noble Energy and Israeli firms Delek Drilling, Avner and Ratio Oil.

Woodside CEO Coleman said in April that changes in plans for Leviathan to have a larger gas pipeline component instead of LNG had narrowed the potential profit margins on the project, making it less worthwhile for Woodside to invest in.

The companies had been due to sign a final agreement in March after more than a year of talks, but that was delayed due to a dispute with the Israeli government over the tax treatment of Woodside’s $1.2 billion downpayment on the project.

Noble Energy CEO Charles Davidson said that although agreement had not been reached with Woodside, the partners would continue to develop the reserve in coordination with the Israeli government.