Waiting for good news from Lebanon

Lebanon’s 10 offshore exploration blocks.

After months of inertia there appears to be a renewed drive within Lebanon’s government to pass the two decrees needed to launch the country’s first offshore licensing round.

Sources in Beirut have confirmed to Interfax that senior officials there are pushing to finalise the laws in the next couple of months. “There has been some political motion in [a positive] direction, I hope this will be maintained,” one source said.

However, the timing of the approval is uncertain because the Council of Ministers has yet to schedule time to discuss the issue.

Lebanon has been without a president for the past nine months and legislation can only be passed if unanimously approved by all 24 ministers. The result is the country’s already convoluted political process has almost ground to a halt.



The decrees

The decrees that need to be ratified cover the delineation of the offshore blocks and the terms of the model exploration and production agreement (EPA).

The model EPA has been criticised for having too many moving parts, especially regarding two key fiscal parameters – the cost-recovery and profit-sharing provisions – and the minimum profit-sharing parameter, on which investing consortiums may bid, according to a report published by the German Marshall Fund.

“These provisions would add a further administrative burden to Lebanon’s already overstretched bureaucratic system, complicate revenue forecasting, and create scope for future renegotiation of fiscal terms if discoveries prove smaller than expected or uneconomic,” said report authors Bassam Fattouh and Laura El-Katiri.

But there is still a broad consensus within the government concerning the two decrees, and the priority now is just to pass the legislation. Once approved, Lebanon will launch the exploration licensing round within six months.

It is still unclear at this stage how many or which of Lebanon’s 10 blocks will be put up for tender. “The general feeling is the government might go out to offer five to eight blocks, but will only award one or two at this stage,” said Roudi Baroudi, an independent energy economist and former secretary general of the World Energy Council.

It looks likely at least one of these blocks will be in maritime territory disputed by Israel on Lebanon’s southern border, where there could be a higher probability of finding reserves.

“The need to auction blocks running along the Lebanese-Israeli border is increasingly accepted among the various political factions, and is seen as a way to assert Lebanon’s rights over areas considered as an integral part of the country’s exclusive economic zone,” said Mona Sukkarieh, co-founder of Beirut-based consultancy Middle East Strategic Perspectives.


Twelve companies – including Shell, Eni, ExxonMobil, Petrobras and Chevron – prequalified as operators, while 34 qualified as non-operators in Lebanon’s prequalification round in 2013, an indication of the strong initial interest in the country’s offshore.

Given the time that has elapsed since this tender, the Lebanese Petroleum Administration and parliamentary committee dealing with energy issues are discussing the possibility of organising a second prequalification round. However, unless existing bidders give up and withdraw, this looks unlikely to happen, according to Nader.

IOCs appear not to have lost interest in Lebanon, despite the government delaying the licensing round five times already. “Companies are still visiting and following up on progress and, until recently, quite a number were actively buying geological surveys for our offshore EEZ,” said Baroudi.

Low oil and gas prices may mean it is not the optimal time to launch the first licensing round, but the opportunity is not lost for Lebanon, said Sukkarieh. For explorers looking to invest in Lebanon many parameters will come into play, “chief among them the size of potential discoveries”, she told Interfax – and the rapid growth of economies in the region guarantees demand for this new supply for decades to come.

Source: Interfax Energy