Woodside Petroleum is confident of sealing its deal to buy into a large Mediterranean gasfield despite reports Israeli authorities might order the seller to divest its stake.
Woodside CEO Peter Coleman also said the development of the giant Sunrise oil and gasfield in the Timor Sea could advance in the next 12 months if the parties can agree how to develop it.
He said a window of about 12 months had opened for Sunrise, exploitation of which has been held up by disputes over the ownership of the field and the whether it will be exploited by a floating LNG plant or one based in East Timor.
“If we can all get together and agree on the right path forward the next 12 months could see quite a bit of movement forward,’ Mr Coleman told reporters at IHS CERAWeek2013 in Houston.
He shrugged off reports that Israeli competition regulator David Gilo could order Noble - seller of a 30 per cent stake in the Leviathan field off the Israeli coast to Woodside - and another owner to sell their Leviathan stakes on the grounds they are a ‘cartel’.
“We are confident that the agreement with Noble will close,” Mr Coleman said.
“There’s nothing out there that we don’t think we can work through in the not too distant future at all.”
‘MEETING WITH PARTNERS’
Mr Coleman said Woodside was “a little distant” from the issue but based his confidence in a favourable outcome on advice that the regulator’s reasoning “goes a little further than our understanding of what the law says”.
Woodside’s understanding was that the law just looks at transparency of pricing and the contractual arrangements that are in place and press reports suggested Mr Gilo’s reasoning “went beyond that”.
“We are meeting with the partners while we are here in Houston this week and we’ll be able to get a much better read on it.”
He said Israel was going through a learning process like other countries developing major hydrocarbon projects for the first time as it put in place fiscal, environmental and other regulatory terms.
But he remained positive because the country was “very focused on development and growth”.
Woodside agreed to buy the 30 per cent stake in Leviathan from Noble - which has 39.66 per cent - in December. Delek owns 45.34 per cent.
NO DECISION YET ON EAST TIMOR PLANT
Mr Coleman said the issue of whether the LNG processing plant was developed offshore or in East Timor had implications for government revenues and tax sharing which haven’t been addressed yet.
“We haven’t been able to pull everybody into a room yet to agree on that,” he said.
He said the “best commercial advantage” clause in the Sunrise partnership agreement means a floating LNG plant is the best answer because “it wouldn’t come under the same cost pressures as an onshore plant in Australia.”
“Cost for an onshore plant in Timor (is) not clear to me because on the one hand you may find lower labor rates. on the other hand you may find there’s lack of infrastructure and so forth.”
HENRY HUB’S PRICE REACH
Mr Coleman said the US domestic Henry Hub gas price could have an influence on long term contract prices to Japanese buyers via the contractual price review mechanism.
The mechanism looks at the average landed price of LNG in Japan. As Japan taps new sources of supply linked to Henry Hub or other sources will influence the contractual rice via the average landed price, Mr Coleman said.
But he said it was difficult for him to understand how the risk would be shared between the buyer and seller if the Henry Hub price were introduced as a factor in contract prices outside the contractual review.
“The simplest solution is the best one and the simpler one is to ensure we have contracts that remain cost-of-supply linked.
“What we have to do as a producer is to ensure we keep our costs of supply as low as possible and that’s the best thing for Japan and for Tokyo Gas and others.”
He said Woodside was committed to maintaining an oil price link because it needed to maintain sufficient margins to reward the risks it takes on major projects.
The average project took 10 to 12 years to pay back its investment and the drillers and other essential services for rigs didn’t discriminate between oil and gas wells.
He said the market could move to other indexes over time “but I don’t see the predictability in that” or more importantly the return.
JUNE DEADLINE ON BROWSE
He said the joint venture partners were digesting Woodside’s proposal for the Browse Basin gas project off Western Australia and the process was on track for completion by June.
“It’ll just come down to a commercial decision for us and the Joint venture is going to have to get together and mull over that.”
He said new partners Mitsubishi-Mitsui and PetroChina - which bought a stake from BHP Billiton - would want a say in the decision.
“Everyone in the family needs to be able to have a look at it decide for themselves and out their view on the table and then we need to move forward together.
WPL Price at posting:
$37.02 Sentiment: LT Buy Disclosure: Held
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