Oil and gas producer Woodside Petroleum plans to take a smaller stake in the Leviathan joint venture gas project as it awaits certainty around Israeli tax policy.
Woodside has seven weeks to finalise the $US1.2 billion ($A1.34 billion) deal after signing a non-binding agreement to take a 25 per cent stake in the deepwater project off the coast of Israel.
The Perth-based company had planned to secure a 30 per cent stake and spend less on the project when it announced its original plans to the market more than a year ago.
Woodside has recently been waiting for the Israeli government to finalise its tax policy for gas export projects before making a final decision on investing in Leviathan.
The new non-binding memorandum of understanding (MOU) with joint venture partners is conditional upon tax and regulatory approvals from the Israeli government.
Woodside chief executive Peter Coleman is confident the deal will go ahead, and said the MOU provided a potential commercial outcome with "compelling value".
"We look forward to the ongoing engagement with the joint venture, government and other stakeholders to move forward with the Leviathan project," Mr Coleman said in a statement on Friday.
But analysts say the non-binding nature of the MOU means all options remain on the table.
The Leviathan field in the Mediterranean Sea is Israel's biggest gas discovery and holds an estimated 18.9 trillion cubic feet of natural gas and 3.4 million barrels of condensate.
Woodside would be the operator of any LNG (liquefied natural gas) development of the field and US-based Noble Energy would remain upstream operator.
Woodside and joint venture partners Noble Energy Mediterranean, Delek Drilling, Avner Oil Exploration and Ratio Oil Exploration will hold further talks with the aim of finalising a legal agreement by March 27.
The parties, led by Noble Energy, are looking to supply domestic gas to Israel and neighbouring countries such as Turkey, Egypt and Jordan and beyond.
Woodside will pay $US850 million upon completion of the transaction under a fully-termed agreement.
Another $US350 million will be paid on a final investment decision for an LNG development, or payments of up to $US350 million on predetermined export project milestones.
The Leviathan investment was previously valued at $A1.2 billion.
Shares in Woodside were down four cents at $37.58 at 1501 AEDT.
