At the end of January, Lebanon signed its first exploration & production agreements (EPA) with a consortium of companies composed of France’s Total (as operator), Italy’s Eni, and Russia’s Novatek. The consortium had placed two separate bids on October 12, 2017, for Block 4 and Block 9. With the contracts signed, Lebanon can now look forward to the exploration phase. The consortium has committed to drill two wells in 2019, one in each block. But what can Lebanon expect prior to drilling?
The Council of Ministers approved the award of exclusive petroleum licenses for exploration and production to the consortium in these two blocks in a cabinet meeting on December 14, 2017. This is what the EPA—the contract between the State and the consortium—refers to as the “effective date,” and our starting point to map out the road ahead in 2018.
By now, the three companies forming the consortium should have established a legal presence in Lebanon, staffed and able to carry out its rights and duties. In addition, they should have established a management committee to authorize and supervise petroleum activities. Each one of the companies has the right to appoint at least one representative in this committee. Lebanon may also be represented in this committee: The energy minister and the Lebanese Petroleum Administration (LPA) are entitled to appoint representatives, though these will only have an observer status.
The exploration phase will extend over a maximum period of six years, divided into a first period of three years, and a second period of two years, which may be extended for an additional year. The consortium is expected to submit the initial exploration plan to the energy minister and the LPA within 60 days of December 14, 2017 (the Effective Date). The plan should be approved within a maximum period of 60 days, if it meets all the criteria specified in the EPA. On the day it is approved, the exploration phase will have officially started.
Prior to the signature date, the companies must have provided work commitment guarantees to safeguard the state in case of failure to fulfill the minimum work commitment specified in the EPA. These are the tasks that the consortium is required to perform (excluding an event of Force Majeure). In the first exploration period, which starts on the date the Exploration Plan submitted by the Consortium is approved and extends over a period of three years, these tasks include conducting surveys, if it is deemed that existing surveys are not enough, and drilling exploration wells, starting in 2019 in Block 4 and in Block 9.
Within 60 days of the effective date, the companies must prepare a detailed work program and a budget for exploration activities, consistent with the requirements of the exploration plan, and submit it to the LPA. The regulatory body will either approve the work program and budget within a maximum period of 30 days, or reject it, in which case the decision must be explained to the companies in writing so that the companies may submit a revised version.
Companies are also required to recruit 80 percent of their workforce from among Lebanese nationals. As this is hard to achieve at the beginning of their activities, the legislation allows a certain flexibility. Companies are expected to devise a detailed recruitment and training program. A proposal must be submitted to the LPA within six months after the EPA’s approval. If companies at first cannot meet the 80 percent threshold, they will be required to submit a written explanation on their own behalf, and on the behalf of their contractors, detailing the reasons and requesting an exemption.
In addition, companies are also expected to assign a budget for training public sector personnel working on the oil and gas sector, starting with $300,000 per year, with a 5 percent increase each year, until the beginning of the production phase, at which point the amount will increase to $500,000 per year.
These costs are recoverable costs for the companies.