Australian Woodside Acquires 25% Of Israeli Gas Field Leviathan For $2.71 Billion

Woodside will acquire 25% of Leviathan for $2.71 billion at a signing ceremony in Jerusalem.
cmimg_13108-After more than a year of difficult negotiations, the farm-out agreement to sell 25% of the rights in the Leviathan gas field to Australia’s Woodside Petroleum Ltd. (ASX: WPL) for $2.71 billion will be signed on Thursday in Jerusalem. The signing ceremony will take place in a conference room at a prestigious hotel in the presence of Delek Group Ltd. (TASE: DLEKG) controlling shareholder Yitzhak Tshuva, and Noble Energy Inc. (NYSE: NBL) CEO Charles Davidson, Ratio Oil Exploration (1992) LP (TASE:RATI.L) shareholders Ligad Rotlevy and Yigal Landau. Sources inform ”Globes” that Woodside CEO Peter Coleman will arrive in Israel today to join the group of company executives who arrived several days ago to participate in the signing.

Ahead of the signing, on Tuesday, the Ministry of Finance sent out a memo of the draft bill on taxing natural gas exports. The tax model is based on the normative netback for setting the transfer price. Under this method, the normative netback on investment for each export deal is based on the price of gas in the target market, less the set-up and operating costs of the gas transportation infrastructures. Industry sources say that this model will only be relevant for export contracts via a floating liquefied natural gas (FLNG) facility, which Woodside will handle.

The amount of gas slated for LNG exports will not exceed four trillion cubic feet (TCF), 20% of Leviathan’s commercial reserves. The rest of the gas is intended for customers in Israel and the region, which will be delivered by pipeline to a floating production, storage and offloading (FPSO) ship, above the gas field. The tax on these exports contracts will be the same as on gas sales to domestic customers, without the need for establishing a transfer price.

Besides taxes, there are two other important open issues: the lease terms that the partners in Leviathan will receive from the government, which establish their rights and obligations to the government during the gas field’s lifespan; and the final settlement with the Antitrust Authority regarding alleged restraint of trade. The issue of the holding is due to be settled today or tomorrow, after the Leviathan licenses were extended last week. However, if these issues are still unresolved when the farm-out agreement is signed, the agreement could include reservations and conditions that will affect the payment.

The farm-out agreement is based on the memorandum of understanding (MOU) signed with Woodside in December 2012 and the MOU signed in Australia earlier this year. The parties will sign the agreement tomorrow, even if the outstanding issues are not solved.

Gas export offers for Leviathan

Sources also inform ”Globes” that more than ten bids from Turkish and foreign companies have been submitted in the tender by the partners in Leviathan for the purchase of gas from the gas field. The bids are for the purchase of 7-10 billion cubic meters of gas a year.

In addition to the negotiations on gas exports to Turkey, the partners in Leviathan are in talks with representatives of BG Group plc (NYSE; LSE: BG) and other energy majors that operate LNG plants in Egypt. These companies want to buy Israeli gas to replace Egyptian gas, after the Egyptian government banned exports because of the domestic gas shortage.

Published by Globes [online], Israel business news – www.globes-online.com

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