Australia's Woodside Petroleum is expected to confirm plans worth up to $2.71 billion to take a 25 percent stake in Israel's giant Leviathan gas field but differences over profit sharing threaten to slow plans for exports.
Woodside is set to sign a landmark deal for a stake in the 19 trillion cubic feet field, capping more than a year of negotiations and debate over export quotas.
As a liquefied natural gas (LNG) specialist, Woodside is seen as a key player in Israel's' bid to sell the super-cooled gas to distant markets in Asia and South America.
Leviathan's two other main shareholders are U.S. explorer Noble Energy and Israel's Delek Drilling.
Yet in behind-the-scenes discussions between the government and shareholders, including Woodside, there remain tensions over aspects of the project, diplomatic, industry and analyst sources told Reuters.
"The government recently asked Woodside to take half as much of the profit from exports to Asia as it had first agreed," one industry source said.
A separate investor source said Woodside, which initially agreed to take an 18 percent profit share of Israeli gas exported to Asia, was offered just eight percent by the government a month ago.
The company will sign Thursday's agreement but intends to freeze funding for developing Leviathan until it receives a government guarantee of its initially agreed 18 percent profit share, a diplomatic and a industry source both said.
A clause in Woodside's contract to be signed at a high-profile event on Thursday will allow the company to withhold funds earmarked for Leviathan until its commercial terms are met, the sources said.
A tax plan announced this week suggested that Israel is moving closer to Woodside's original terms.
The government is also testing out a string of other demands that include vetting potential new investors and halting exports at times of domestic emergencies.
"The government wants a clause that will say that in the event of a crisis in the Israeli market, output from Leviathan will be prioritised for domestic uses over exports," the investor source said.
That proposal could tarnish the attractiveness of Israeli gas among potential buyers, who may think twice about agreeing to long-term LNG deals if politicians can turn off the taps.
In Egypt, where the government has diverted increasing amounts of gas for the domestic market, LNG output has fallen sharply, costing investors such as BG Group and Italy's ENI billions of dollars in lost revenues.
Yet with Israel's population a fraction of Egypt's a comparable surge in gas demand is not a likely scenario in the near term.
Proposals allowing the government to approve new investors are also being resisted by the project's developers, concerned that the entry of new partners could be tied up for years by state bureaucracy.
Among the new conditions set by the government, Leviathan shareholders will also be required to put down a $100 million deposit each to obtain a field lease.
That could present a challenge for Leviathan's smaller shareholders, such as Ratio Oil, which may struggle to raise such a large lump sum, one investor said.
Texas-based Noble Energy is leading the Leviathan development project with a 39.66 percent stake. In addition to the combined 45.34 percent held by Delek Drilling and Avner Oil, both subsidiaries of Delek Group, Ratio Oil has 15 percent.