Israel may be a new mecca for world LNG production, but it could be a step too far for Royal Dutch Shell (NYSE: RDS.A). According to analysts at Commonwealth Bank (ASX: CBA) Shell is likely to sell its 23% stake in Australia’s second largest oil and gas producer Woodside Petroleum (ASX: WPL) in order to distance itself from any direct or indirect dealings with the country.
In December Woodside announced an agreement in principle to acquire a 30% stake in the Leviathan gas field joint venture off Israel’s coast which would give the company access to the field’s 17 trillion cubic feet of recoverable natural gas. Woodside would act as operator of any developed LNG field while Texas-based Noble Energy would be behind the exploration.
Shell’s stake in Woodside is estimated to be worth up to $6.9 billion, but analysts say the company would sell the stake to stay onside with Middle Eastern countries where Shell currently has significant investment and which have conflict with the Jewish state. Shell has declined to comment on the CBA report but have previously indicated the company’s stake in Woodside was incompatible with its long term plans. BHP Billiton (ASX: BHP), currently Australia’s largest oil and gas producer has been tipped as a possible buyer for the share.
Geopolitical tension is not a familiar experience for Aussie-owned companies, even those involved in high amounts of foreign investment. It’s a fact that makes the companies more attractive to investors as it keeps open more avenues for growth. However it is an issue that has stung other major companies. The USA and China operate on a tentative political relationship which often requires a cautious approach by US companies wanting to expand into China. Earlier this month Apple CEO Tim Cook was forced to apologize to Chinese customers after criticisms over different warranty pricing in the country.
If Shell does sell its shares in Woodside it is unlikely it will occur as a giant flood of shares to the market. Instead it may represent a good opportunity for a large company seeking increased exposure to oil and gas production, with cash to spare and no predisposition to political conflict.
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