Woodside Petroleum is poised to make Australia's largest foreign direct investment into Israel, after committing up to $US1.3 billion to take 30 per cent of the huge Leviathan offshore gas field.
The gas field is operated by US firm Noble Energy, but under the deal Woodside would operate any liquefied natural gas (LNG) plant to be built as the field is developed.
Woodside chief executive Peter Coleman told investors the ''base case'' was that an LNG plant would be built onshore within Israel, although some consideration had been given to a floating plant. A development in Cyprus was ''unlikely'', he said.
The Leviathan field, discovered in 2010, is estimated to hold about 17 trillion cubic feet of gas and is generally considered to fall within Israel's exclusive economic zone in the Mediterranean, although there was earlier some dispute with Lebanon. The Leviathan field is twice the size of the nearby Tamar field, discovered in 2009.
According to a Bloomberg report earlier this year, Hezbollah said in December 2010 that it would not allow Israel to ''plunder Lebanon's maritime assets''.
Asked about security risks, Mr Coleman said Woodside had been to Israel ''on two occasions''.
''We've made our own assessment of security risk. We have spoken not only to Israeli security forces but also reviewed potential sites for onshore facilities and made our own risk assessment around that. We feel that's manageable.''
Mr Coleman said Woodside's assessment of political risk for Israel, or for Burma, where the company is also considering investments, was no different to any other country, and was based on the stability of the rule of law and the government's willingness to encourage foreign investment.
The domestic gas and potential LNG projects being contemplated by the joint venture partners were ''an order of magnitude larger than another foreign direct investment that's gone into Israel'', he said.
Woodside would publish the terms agreed with the Israeli government, but Mr Coleman said the country was ''quite motivated to ensure we have stability and fiscal terms and investment terms to make us all long-term investors''.
Mr Coleman would not comment on potential costs of an LNG development in Israel but said labour costs were ''quite competitive''.
He said Woodside, which has had a run of poor exploration results in recent years, saw a high degree of complementarity with Noble, which ''knows how to explore and explore very well'', while Woodside would contribute LNG development skills.
Woodside shares rose 0.9 per cent to $34.11 at the close.
David Lennox, an analyst at Fat Prophets, said Woodside's challenge would be to run the project amid the region's political instability.
''There may have been better opportunities elsewhere, albeit at higher prices,'' Mr Lennox said. ''The rewards really come with oil and this is not really a proven oil zone. There's also a potential security risk.''