Australia’s Woodside plans to buy a quarter of Israel’s biggest natural gas field..

Woodside Petroleum Ltd. (WPL), Australia’s second-largest oil producer, plans to buy a quarter of Israel’s biggest natural gas field for as much as $2.6 billion under a revised agreement as demand rises in the Middle East.

Woodside agreed to pay Noble Energy Inc. (NBL) and its partners in the Leviathan venture an initial $850 million when the deal is completed, due by the end of next month, the Perth-based company said today in a statement. The stake is smaller than the 30 percent negotiated in a December 2012 deal worth as much as $2.3 billion, though the estimated size of the resource rose to 18.9 trillion cubic feet of gas from 17 trillion cubic feet.

A deal would put Woodside in the middle of Israel’s nascent natural gas industry as the company’s proposed projects in Australia face delays. The original 2012 agreement was held up because of uncertainty over Israel’s export policy, while the venture partners also shifted the project focus from liquefied natural gas to pipeline shipments.

“Any time you can buy your way into a big pile of gas it’s not necessarily a bad thing,” Andrew Williams, a Melbourne-based analyst at RBC Capital Markets, said today by phone. “But there are still a lot of uncertainties” around how the project will take shape, he said.

Woodside shares fell 0.1 percent to A$37.58 in Sydney trading. Australia’s benchmark index rose 0.7 percent.

Domestic Market

The partners including Delek Drilling LP, Avner Oil Exploration LLP (AVNRL) and Ratio Oil Exploration LP intend to supply the domestic market in Israel and neighboring countries, while also exporting LNG, Woodside’s expertise.

Discovery of the Leviathan field in 2010 was the world’s biggest in a decade. Its value has increased with the potential to pipe the fuel to regional customers at lower cost, Noble Chief Executive Officer Charles Davidson said in November.

“You can argue that value has been added so you’re going to have to pay more,” RBC’s Williams said. “But it doesn’t address the concerns in the market, the lack of short-term growth.”

Woodside, operator of the Pluto and North West Shelf LNG projects in Western Australia, has faced delays at its proposed Browse and Sunrise LNG ventures. It is pushing ahead with overseas expansion in countries including Myanmar. The company is considering an LNG project in Canada, it said in January.

Floating LNG

The price the oil producer is paying is only slightly higher than in the 2012 agreement, taking into account the increase in gas resources, and is “attractive” compared with similar LNG transactions, Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co., said today in a report.

The Leviathan partners may focus on floating LNG, using an offshore platform to convert the gas into liquid form, with an investment decision potentially in 2016 and production at the end of the decade, according to Beveridge.

In the new accord, the company will pay $350 million after an investment decision is made, or as much as $350 million on hitting export project milestones, according to the statement. It will make a payment on export gas sales capped at $1.3 billion and may pay a separate one-time payment of $50 million.

In addition, a royalty of 2.5 percent on commercial oil production from a potential deep oil prospect will be paid, Woodside said. The companies intend to complete the agreement by March 27, according to the statement.

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