Woodside drops Leviathan, but small FLNG may still happen
A Noble Energy and Transocean rig in the Tamar field offshore Israel. (Transocean)
After 18 months of negotiations, Woodside has finally abandoned a
$2.7 billion deal to take a 25% stake in the Leviathan gas field, saying
it was not commercially viable.
“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 on Wednesday.
Woodside had been waiting for further clarity on Israel’s gas export tax before signing off on the farm-in. The Australian LNG player was said to be disappointed by the severity of the tax, having calculated the profitability of its Leviathan investment based on far lower taxation, Interfax understands.
The Perth-based company’s share price on the Australian stock exchange dropped immediately after the news was announced, but quickly bounced back and closed slightly higher than the day before.
However, some argue the growth in regional gas demand in the East Mediterranean had weakened the strategic case for bringing in an Australian LNG player with a customer base in East Asia.
The surge in interest in Israeli gas from private companies in Turkey, Egypt and Jordan over the past year “has pushed the need for LNG into a later phase of development versus our earlier plans”, Charles Davidson, chief executive and chairman of Noble Energy – operator of the Leviathan field – said on Wednesday.
Still, Woodside may yet join a slimmed down FLNG-led second phase of the Leviathan development. “We might have a smaller-scale joint project together with Woodside for FLNG for which we will allocate, say, 4 trillion cubic feet [113 billion cubic metres] of gas,” one partner close to the project told Interfax. “But for now we will continue full steam ahead with promoting pipeline exports of gas to neighbouring countries and domestic market.”
The project partners have an option to revive the non-binding letter of intent signed with the Levant LNG Marketing Corp. – a joint venture of Daewoo Shipbuilding and Marine Engineering, NextDecade and D&H Solutions – and the Tamar partners to build a 3 mtpa FLNG facility offshore Israel.
Tamar transfer
While the agreement was initially for the Tamar field, it would not be a problem to transfer it to Leviathan, a source told Interfax. Gazprom Marketing & Trading signed a heads of agreement with the JV early in 2013 to market the full 3 mtpa of LNG from the facility for 20 years.
“It is imperative the Leviathan partners develop the FLNG export scheme along with pipeline projects – and Woodside could have contributed a lot in terms of bringing in LNG clients, technology and financing,” said Amit Mor, chief executive of Israel-based financial consulting firm Eco Energy.
“Although the pipeline projects to Turkey, Egyptian liquefaction projects and Jordan are the most economically viable and strategically important, they are still prospective and are facing geopolitical challenges,” Mor said.
Even the strong financial support Woodside would have brought to Leviathan – which has an upstream cost estimated at $5 billion – became increasingly unnecessary over the course of negotiations. A $2 billion bond offering by Delek Group units Delek Drilling and Avner Oil in May was more than five times oversubscribed, demonstrating international investors’ financial appetite for the Leviathan project.
Cash flow from the Tamar gas field, which started production in April 2013, has also bolstered the finances – and market confidence – of Noble and Delek.
“At the time Woodside came in, [Delek group controlling shareholder Yitzhak] Tshuva did not have much cash – but that has changed dramatically,” said the source. “At this point, why [would he] reduce his stake in Leviathan to 30% when he could keep it at 45%?”
Delek’s successful bond issue has offered significant encouragement to minority Leviathan shareholder Ratio Oil. The company will now look to raise roughly $200 million through bonds, a source told Interfax. The Leviathan partners might also sell a 5% stake in the project to a financial partner to bring in additional cash.
“There have also been some general enquiries among financial investors to purchase a small stake of Leviathan – and it will be at a much higher price than Woodside would have paid,” the source said.
Even if Woodside’s experience became of diminishing strategic importance to the Leviathan partners, the threat of a major foreign investor withdrawing from the project – potentially delaying its development – may have proved a useful tool for bargaining with Israeli regulators, a source told Interfax.
Last-minute lease
In the hours before Coleman was due to sign the farm-in agreement on 27 March, the Leviathan partners secured both a lease for the Leviathan field development and reached a settlement with the anti-trust commissioner over Noble and Delek’s alleged monopoly over the gas market in Israel.
“I think everybody could read the new setting, and they got what they wanted. Negotiations with Woodside offered [the Leviathan partners] leverage vis à vis the ministries here; they reached an agreement with the anti-trust authority and secured a production licence with the ministry of energy,” the source said. “Once these were in place – and having more money than they had before – why should Noble and Delek reduce their stakes?”
“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 on Wednesday.
Woodside had been waiting for further clarity on Israel’s gas export tax before signing off on the farm-in. The Australian LNG player was said to be disappointed by the severity of the tax, having calculated the profitability of its Leviathan investment based on far lower taxation, Interfax understands.
The Perth-based company’s share price on the Australian stock exchange dropped immediately after the news was announced, but quickly bounced back and closed slightly higher than the day before.
However, some argue the growth in regional gas demand in the East Mediterranean had weakened the strategic case for bringing in an Australian LNG player with a customer base in East Asia.
The surge in interest in Israeli gas from private companies in Turkey, Egypt and Jordan over the past year “has pushed the need for LNG into a later phase of development versus our earlier plans”, Charles Davidson, chief executive and chairman of Noble Energy – operator of the Leviathan field – said on Wednesday.
Still, Woodside may yet join a slimmed down FLNG-led second phase of the Leviathan development. “We might have a smaller-scale joint project together with Woodside for FLNG for which we will allocate, say, 4 trillion cubic feet [113 billion cubic metres] of gas,” one partner close to the project told Interfax. “But for now we will continue full steam ahead with promoting pipeline exports of gas to neighbouring countries and domestic market.”
The project partners have an option to revive the non-binding letter of intent signed with the Levant LNG Marketing Corp. – a joint venture of Daewoo Shipbuilding and Marine Engineering, NextDecade and D&H Solutions – and the Tamar partners to build a 3 mtpa FLNG facility offshore Israel.
Tamar transfer
While the agreement was initially for the Tamar field, it would not be a problem to transfer it to Leviathan, a source told Interfax. Gazprom Marketing & Trading signed a heads of agreement with the JV early in 2013 to market the full 3 mtpa of LNG from the facility for 20 years.
“It is imperative the Leviathan partners develop the FLNG export scheme along with pipeline projects – and Woodside could have contributed a lot in terms of bringing in LNG clients, technology and financing,” said Amit Mor, chief executive of Israel-based financial consulting firm Eco Energy.
“Although the pipeline projects to Turkey, Egyptian liquefaction projects and Jordan are the most economically viable and strategically important, they are still prospective and are facing geopolitical challenges,” Mor said.
Even the strong financial support Woodside would have brought to Leviathan – which has an upstream cost estimated at $5 billion – became increasingly unnecessary over the course of negotiations. A $2 billion bond offering by Delek Group units Delek Drilling and Avner Oil in May was more than five times oversubscribed, demonstrating international investors’ financial appetite for the Leviathan project.
Cash flow from the Tamar gas field, which started production in April 2013, has also bolstered the finances – and market confidence – of Noble and Delek.
“At the time Woodside came in, [Delek group controlling shareholder Yitzhak] Tshuva did not have much cash – but that has changed dramatically,” said the source. “At this point, why [would he] reduce his stake in Leviathan to 30% when he could keep it at 45%?”
Delek’s successful bond issue has offered significant encouragement to minority Leviathan shareholder Ratio Oil. The company will now look to raise roughly $200 million through bonds, a source told Interfax. The Leviathan partners might also sell a 5% stake in the project to a financial partner to bring in additional cash.
“There have also been some general enquiries among financial investors to purchase a small stake of Leviathan – and it will be at a much higher price than Woodside would have paid,” the source said.
Even if Woodside’s experience became of diminishing strategic importance to the Leviathan partners, the threat of a major foreign investor withdrawing from the project – potentially delaying its development – may have proved a useful tool for bargaining with Israeli regulators, a source told Interfax.
Last-minute lease
In the hours before Coleman was due to sign the farm-in agreement on 27 March, the Leviathan partners secured both a lease for the Leviathan field development and reached a settlement with the anti-trust commissioner over Noble and Delek’s alleged monopoly over the gas market in Israel.
“I think everybody could read the new setting, and they got what they wanted. Negotiations with Woodside offered [the Leviathan partners] leverage vis à vis the ministries here; they reached an agreement with the anti-trust authority and secured a production licence with the ministry of energy,” the source said. “Once these were in place – and having more money than they had before – why should Noble and Delek reduce their stakes?”
Link to source: http://interfaxenergy.com/gasdaily/article/8428/woodside-drops-leviathan-but-small-flng-may-still-happen?dm_i=1ZRI,2H9IW,G3ABZ6,90VDO,1
