Woodside, Noble Deal on Leviathan Field Collapses

NEW YORK (The Deal) -- Australia's Woodside Petroleum has abandoned plans to pay as much as $2.55 billion for a 25% stake in Israel's Leviathan field, claiming that negotiations with sellers led by Houston-based Noble Energy  (NBL) failed to reach a "commercially acceptable outcome."

The decision comes 18 months after Woodside first announced plans to buy into the Mediterranean field and just under four months after it signed a memorandum of understanding to become both the field's No. 2 shareholder behind Noble, and the operator of an associated LNG plant.

"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 CEO Peter Coleman said in a statement.

Woodside's negotiations with the field's shareholders had been marked by a series of delays, notably related to the existing partners' recent prioritization of sales to nearby markets over seaborne exports to Asia that required a LNG facility.

"The plans for development of the Leviathan discovery have significantly changed since we began the search for a partner approximately two years ago," Noble Energy Chairman and CEO Charles Davidson said in a statement. "The emergence of...regional markets, which are accessible through pipeline outlet, has pushed the need for LNG into a later phase of development."

Woodside also found itself at loggerheads with the Israeli government over the tax treatment of a $1.2 billion initial investment in the field and of the tariffs that would be applied to exports from the project.


The decision to abandon the investment leaves a significant hole in Woodside's medium-term growth prospects. Those prospects had already diminished following delays to its Browse project in Western Australia, which last year abandoned plans to develop a large onshore LNG terminal in favor of a floating LNG operation. A second development, the Greater Sunrise LNG project in the Timor Sea, has also stalled amid disagreements between the Australian and East Timorese governments over how to share revenues.

Woodside is likely to look to acquisitions to boost its growth prospects, according to UBS' (UBS) Nik Burns. "Clearly there is a hole in their growth profile," the Melbourne-based analyst noted Wednesday.

Woodside could turn its attention to Oil Search, an Australia-listed, Papua New Guinea-focused gas explorer that in February paid $900 million for a 22.8% stake in two PNG onshore gas discoveries. Oil Search has a market capitalization of A$13.6 billion ($12.5 billion), compared with Woodside's market cap of A$34 billion.

Leviathan is 39.66% owned by Noble, which is the senior partner and downstream operator in a consortium that also includes Delek Drilling, which owns 22.67%, Avner Oil Exploration, 22.67% and Ratio Oil Exploration, which holds 15% of the project.

Shares in Woodside closed Wednesday at A$41.23, up A$0.31, or just under 1% on their Tuesday close.

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