UPDATE 1-Woodside signs memorandum for 25 pct of Leviathan for $850 mln

(Adds analyst comment on LNG contract negotiations)

SYDNEY, Feb 7 (Reuters) - Woodside Petroleum Ltd WPL.AX said on Friday it has signed a memorandum of understanding to acquire a 25 percent interest in Israel's Leviathan field for an initial $850 million, with a plan to complete a full agreement by the end of March.

The proposed deal is smaller than the previous in-principle agreement for Woodside to buy a 30 percent stake in the newly discovered gas prospect for $1.25 billion.

The memorandum of understanding is part of Woodside's strategy to diversify outside of Australia. It is also considering projects in Myanmar and Ireland.

In October, Israel's top court upheld a government decision to allow about 40 percent of natural gas from the country's offshore reserves to be exported, dismissing arguments that more gas should be earmarked for domestic use.

(Reporting by Jane Wardell; Editing by Jonathan Oatis)

((jane.wardell@thomsonreuters.com)(+61 2 9373 1817)(Reuters Messaging: jane.wardell.thomsonreuters.com@reuters.net))

Keywords: WOODSIDE LEVIATHAN/