Woodside terminates Leviathan deal

After months of negotiations, Woodside says that the parties failed to reach a commercially acceptable outcome.

Leviathan 311 (photo credit: Courtesy of Albatross)
Leviathan 311
(photo credit: Courtesy of Albatross)
Australian hydrocarbon firm Woodside Petroleum Ltd. has withdrawn from a projected $2.71 billion deal to acquire 25 percent of the Leviathan natural gas reservoir, the company announced.
The termination of the preliminary agreement follows months of uncertainty regarding the expected partnership.
After signing a memorandum of understanding with the Leviathan partners on February 7, Woodside was expected to sign an official agreement for the acquisition on March 27. The signing did not take place due to disagreements between Woodside and the Israel Tax Authority.
In its announcement overnight on Tuesday, Woodside said that negotiations among the parties failed to reach a commercially acceptable outcome that would have enabled the full-term agreements to be implemented.
Woodside CEO Peter Coleman stressed that the decision to pull out of the negotiations was difficult and not taken lightly.
“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,” Coleman said.
“While Woodside’s commitment to growth is strong, even stronger is our commitment to making disciplined investment decisions.”
With sufficient hydrocarbon supplies for decades of domestic use and export, Leviathan – located in the Mediterranean Sea about 130 km. west of Haifa – is estimated to contain about 535 billion cubic meters of natural gas and 34.1 million barrels of liquid condensate.
Houston-based Noble Energy owns 39.66% of the Leviathan field, Delek Group subsidiaries Delek Drilling and Avner Oil Exploration each own 22.67% and Ratio Oil Exploration owns 15%. The reservoir is expected to be online by sometime in 2017.
“I would like to acknowledge and thank the Leviathan Joint Venture participants and the Israeli government for working with us,” Coleman said.
Following Woodside’s announcement, Noble Energy chairman and CEO Charles Davidson stressed that development of the field would go on.
“The plans for development of the Leviathan discovery have significantly changed since we began the search for a partner approximately two years ago,” Davidson said. “Perhaps the most dramatic changes have been associated with the growth in the regional markets.
The emergence of these regional markets, which are accessible through pipeline outlet, has pushed the need for LNG [liquefied natural gas] into a later phase of development versus our earlier plans.”
The cabinet approved an export policy on June 23, 2013, capping exports at 40% of production, but the question remains of to whom the Leviathan partners will export the gas.
In January, the Leviathan partners signed a $1.2b. sale agreement with the Palestine Power Generation Company, through which the company would buy around
of gas over 20 years, to fuel a 200-megawatt power plant to be built in Jenin.
Most recently, the partners of the neighboring, already grid-connected Tamar reservoir – of which Noble Energy and Delek are the major stakeholders – signed a letter of intent two weeks ago with Spanish firm Union Fenosa Gas to supply gas to the company’s existing gas liquefaction facilities in Egypt.
If that letter of intent progresses into a contract, the Tamar partners would sell Union Fenosa Gas up to of gas over 15 years.
In February, the Tamar partners signed a $500m. deal with the Jordanian firms Arab Potash and Jordan Bromine to provide of gas to the companies over 15 years, beginning in 2016.
For exports outside of the immediate neighborhood, experts have debated whether a pipeline to Turkey, an LNG plant in Israel, a shared LNG plant in Cyprus, a floating LNG plant, use of the Egyptian LNG facilities or some combination of these options makes the most sense. Through a pipeline to Turkey, the gas could reach European buyers, while through an LNG plant, the hope would be to reach the Asian market.
As far as Leviathan is concerned, Noble Energy said on Tuesday overnight that the initial development phase for the reservoir will involve building a per day floating production, storage and offloading system, to provide natural gas to Israel and regional markets. Front-end engineering and design studies would continue, however, for the second phase of development, which will likely involve a floating liquefied natural gas production system, Noble Energy said.
When Woodside was expected to be involved in the reservoir’s development, the company had prioritized the idea of floating liquefied natural gas export for Leviathan, saying this would be the preferred method of export. As part of the deal that fell through, Woodside would have operated any liquefied natural gas development for the reservoir.
The Leviathan partners, however, remained undeterred.
“While we have not been able to reach a mutually acceptable agreement with Woodside, we continue to move forward with our partners and the Israel government with plans to develop this world-class asset for the benefit of all stakeholders,” Davidson said.