How Woodside Petroleum will win

Long-term benefits to be gained by being among the first to explore Israel, despite uncertainty.

Australian-based oil and gas producer Woodside Petroleum (ASX: WPL) could achieve big long-term benefits by being among the first companies to team up on Israel natural gas production says Uri Aldubi, the chairman of Israel’s oil and gas industry association.

He is in Australia on a two-week tour and has voiced his support for the Woodside’s move into the region. Mr. Akdubi is quoted by The Australian saying “It’s a bit far away and not a lot of people know about it, but sometimes if you are early beginners you get an advantage.”

There is still plenty of uncertainty around the development of Israel’s Leviathan gas field, which Woodside has entered into as an agreement in principle, pending a decision by the state’s high court on how much natural gas will be allowed to be exported offshore.

The initial agreement by the Israeli court was for up to 50% of the recoverable gas to be exported, which was subsequently appealed by the government’s opposition.

However if the deal goes ahead, as a first mover Woodside stands to gain valuable experience and build local relationships in the region that could potentially open up further opportunities for exploration.

Of course the other way Woodside can win from its first mover position is by carving off shares of the project and selling them to other companies for big profit. This can usually only occur after exploration has proven the site holds potential riches.

This has been done before by Woodside, which sold down its stake in the Browse Basin joint venture for $2 billion to Japan’s Mitsubishi Corp. in 2012. BHP Billiton (ASX: BHP) also sold its stake in Browse to PetroChina for $1.63 billion.

These sales can help to fund the massive capital requirements needed to develop the facilities to produce and export LNG. Santos (ASX: STO) did just that in the early stages of its GLNG project, selling a 7.5% stake each to Total and KOGAS in 2010 for a combined $665 million.

Foolish takeaway

Despite the uncertainty still around the total amount of gas available to be exported out of Israel, Woodside’s entry into the project at an early stage gives it a big potential advantage as a first mover which will hopefully pay off for investors.

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Motley Fool contributor Regan Pearson does not own shares in any company mentioned.

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