(Corrects translated quote in paragraph 7 to "tough to overstate" not "tough to understate")
* Australian firm seeks to use LNG expertise outside its home market
* Leviathan was world's biggest offshore gas discovery of past decade
* Production target for Israel gas market is 2016
By Jane Wardell and Ari Rabinovitch
SYDNEY/JERUSALEM, Dec 3 Australia's Woodside Petroleum Ltd has agreed to buy a 30 percent stake in Israel's huge Leviathan natural gas field in a deal that could be worth as much as $2.5 billion.
The announcement on Monday ended an intense bidding war between a number of foreign firms interested in a share of Leviathan. The field, discovered in 2010, holds an estimated 17 trillion cubic feet of gas, making it the world's largest offshore discovery of the past decade.
Woodside, Australia's biggest oil and gas firm, said it would be the operator of any liquefied natural gas (LNG) development of the field some 80 miles (130 km) off the coast of Israel, once energy poor but now expected to become a gas exporter by the end of the decade.
Woodside said the agreement involves an initial upfront payment of $696 million, a further payment of $200 million once laws permitting LNG export were in force and a $350 million payment on a final investment decision for LNG development.
It is also subject to potential annual LNG revenue sharing payments equal to 11.5 percent of Woodside's incremental revenue above an agreed escalating price threshold over the life of the project, capped at $1 billion.
Ratio Oil Exploration, a partner in the U.S.-Israeli consortium currently developing the field, told the Tel Aviv Stock Exchange the deal could be worth up to about $2.5 billion.
"It's tough to overstate the significant effects this move will have on the Israeli energy sector, and the economy in general," Ratio chief executive Yigal Landau said in a statement.
In the deal, Texas-based Noble Energy Inc, which will remain the upstream operator, will sell 9.66 percent of its 39.66 percent share in the field. Delek Drilling and Avner Oil Exploration will each give up 7.67 percent of their 22.67 percent stakes. Ratio will sell 5 percent of its 15 percent stake.
Woodside said it would use existing funds for the deal and no further financing would be required.
Until now Noble had been the main foreign operator in Israel's energy market.
"The entry of Woodside will bring additional international diversity to the Eastern Mediterranean area," Noble Chairman and CEO Charles Davidson said in a statement.
EXPENSIVE AUSTRALIAN LNG PROJECTS
Woodside said initial production for Israel's gas market was targeted for 2016, while a pre-FEED (front-end engineering and design) assessment for an LNG project was underway.
The Australian firm's other three major LNG projects, Pluto, Browse and Sunrise, target Asian markets and have total contingent resources of around 25 tcf of dry gas reserves and 640 million barrels of condensate, according to data on its website.
The firm has been trying to build its global presence to offset a jump in costs at Australian oil and gas developments, with its Pluto project coming in $940 million over budget.
Woodside said in October it had agreed to explore for oil and gas in Myanmar with South Korea's Daewoo International Corp .
In May, it was one of 15 companies, including majors such as Total, to bid on nine offshore gas blocks in Cyprus.
Woodside CEO Peter Coleman said the Leviathan deal was a significant step towards realising an ambition to secure world-class growth opportunities and reflected the firm's LNG development capabilities.
"Acquiring an interest in these permits is an exciting opportunity to grow our portfolio in the emerging Eastern Mediterranean basin," Coleman said in a statement.
The agreement also allows Woodside to participate in further exploration opportunities in the 349-Rachel and 350-Amit Israeli offshore petroleum licences, the company said.
Shares in Woodside closed up 0.92 percent at A$34.11 on Monday, outperforming a 0.57 percent rise in the broader market . ($1 = 0.9585 Australian dollars) (Editing by Ed Davies and Hans-Juergen Peters)