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Woodside Awaits Israel Court Decision Before Completing Gas Deal

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By James Paton: August 21, 2013

Woodside Petroleum Ltd. (WPL), Australia’s second-biggest oil producer, is waiting for an Israeli court decision later this year before completing a deal to invest in the Leviathan natural gas project.

Israeli’s high court is expected Sept. 17 to consider whether the cabinet’s gas export plan, which affects the Leviathan project, needs to be approved by the parliament, Woodside Chief Executive Officer Peter Coleman told analysts today on a call. A court decision after the hearing is expected in the second half of 2013, he said.

“We are prepared to be patient and work through any outstanding issues with the Leviathan joint venture to finalize this deal,” Coleman said after the company posted an 8 percent gain in first-half profit. Woodside hopes the high court ruling will give the company “clarity” on gas exports, he said.

Woodside, operator of the Pluto liquefied natural gas project in Australia, agreed in December to pay as much as $2.3 billion for a stake in Israel’s largest natural gas field to tap both the domestic and export markets. Prime Minister Benjamin Netanyahu said in June Israel will cap exports of its natural gas resources at 40 percent, less than the 50 percent recommended last year by a government committee.

The Israeli government’s policy allows 50 percent of the Leviathan gas to be exported, Coleman said.

Floating LNG

Proposed limits to exports have increased speculation Woodside will withdraw from the Leviathan deal. The Australian energy company may back out, freeing up as much as $1 billion to return to investors, Deutsche Bank AG said last month.

Woodside agreed to make an initial payment of $696 million to the project partners Noble Energy Inc. (NBL:US), Delek Drilling LP, Avner Oil Exploration LLP (AVNRL) and Ratio Oil Exploration (1992) LP. It also agreed to give the partners $200 million once laws permitting LNG exports come into force and $350 million when a final investment decision on an LNG project is made.

Woodside hasn’t had any discussions with its partners on changing the “pricing structure” of the transaction, Coleman said. Some have speculated the partners may favor sending gas to countries by pipeline over LNG exports, Coleman said.

“We assign a low probability to those outcomes,” Coleman said. “LNG is still the basis at this point in time.”

Shares of Woodside dropped 2 percent to A$37.91 as of 3:21 p.m. Sydney time. The benchmark index rose 0.4 percent.

The court ruling, potential revisions to the terms of the deal and the potential for gas to be sent by pipeline are among “the many uncertainties,” Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co. said today in a report.

“We would not ultimately be disappointed if Woodside walked away from this transaction,” Beveridge said.

Woodside also expects an investment decision in mid-2015 on whether to go ahead with a plan to use Royal Dutch Shell Plc (RDSA)’s floating LNG technology for the Browse project in Western Australia, Coleman said today. Woodside expects the Browse partners to approve its recommendation for floating LNG.

To contact the reporter on this story: James Paton in Sydney at [email protected]

To contact the editor responsible for this story: Jason Rogers at [email protected]

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