[Oil & Gas Updates]: Weekly Roundup, March 25, 2013

Lebanon – Country risk:

Lebanese Prime Minister Najib Mikati submitted his resignation on 22/03, bringing the government down ahead of the parliamentary elections in June 2013, which, in any case, only had a slim chance to be held on time, and are now likely to be postponed. There is a likelihood that, come June, the country will find itself without a government and without a parliament, with all the implications that an extended political vacuum could have on the country’s stability. However, we are not there yet. Until a new government is formed, the country will be run by a caretaker government.

The resignation of the government comes just over two months before the launching of Lebanon’s first licensing round for hydrocarbon exploration. According to the Constitution, a caretaker government does not exercise its powers […] except in the narrow sense of managing day-to-day affairs. Two crucial decrees should have been adopted before launching the first licensing round: defining offshore blocks and approving the model exploration and production contract. Holding the first licensing round on time now depends on how fast a new government is formed. There was a precedent in the past (1969) when a caretaker government did indeed have to adopt decrees, given how long it took to form a new government (seven months). It is unlikely the current caretaker government will invoke this precedent unless the appointment of a new government is repeatedly delayed. However, in a press conference held on 24/03 to discuss the resignation of the government, Energy Minister Gebran Bassil sought to reassure that work at the ministry will not be put on hold, and insisted that all the deadlines related to hydrocarbon exploration will be respected.

President Michel Slaiman should now consult members of parliaments to name a Prime Minister. The timing of these parliamentary consultations however won’t be set before Tuesday 26/03, since the President will be representing Lebanon at the Arab League meeting in Doha, which also means they are not likely to be held until after Easter. The Prime Minister designate will then conduct consultations to form a cabinet, but is not constrained by a deadline, since the Constitution does not set a timeframe for forming a new government. It took Najib Mikati five months to form the previous government.

It is interesting to note that a source among the President’s entourage leaked to Lebanese daily Assafir on 23/03, that during his African tour, the President reportedly “thanked God that offshore oil and gas were not discovered earlier… we would have squandered this opportunity.” This suggests that the President was not satisfied with the way things were managed in the past, although he refrained from expressing such views before. The President might also be sending a positive signal towards Gebran Bassil, suggesting he was pleased with his work as Minister of Energy and Water.

Lebanon offers a lot of potential for investors, but, as Mikati’s resignation shows, country risk remains significant and should be taken into consideration. International oil companies that are interested in Lebanon cannot ignore the need for country risk analysis.

Lebanon – Academic formation and programs:

Université Saint Joseph (USJ), one of the leading universities in Lebanon, announced on 19/03 that a Master’s degree in oil and gas will be introduced by its Faculty of Engineering, in September 2013, in collaboration with l’Institut français du pétrole (IFP) and France’s major oil firm Total. This is the type of partnerships between local universities and international companies that MESP advocated for [see “Lebanon – Academic formation and programs” in our March 4, 2013 roundup; and “Lebanon – Offset” in our January 14, 2013 roundup]. Despite being a French-language university, courses for this Master’s degree will be taught in English. This, in addition to USJ’s record as a serious institution, and Total and IFP’s experience, will boost the importance of the program well beyond Lebanon and attract interested students from around the region (traditionally keen on pursuing their studies in Lebanon). This is the first major benefit the country has reaped from its offshore gas, the presence of which (in commercial quantities) has not been confirmed yet. MESP, which did not fail to note the Spanish Ambassador Milagros Hernando’s visit to Université Saint-Esprit de Kaslik (USEK) on 21/03, hopes that other similar partnerships will be created. While this was primarily a cultural visit, we hope that the growing ties will encourage further partnerships in other fields, including oil and gas.

Lebanon – Pre-licensing round arrangements:

An official at the Ministry of Energy and Water told Reuters on 20/03 that 97 oil companies have requested application documents for the pre-qualification round.  Between companies that have bought seismic data, those that expressed interest in retrieving seismic data, and those that have requested application documents, it can be said that a lot of numbers are circulating in the press these days. Though indicative of a certain interest among international companies, the actual numbers everybody is anticipating (in addition to the identity) is how many companies have applied for the pre-qualification round, and, later on, how many will actually bid.

The anonymous source did not reveal how many companies have applied so far, which is not surprising in itself given that the pre-qualification round is open until March 28. Just like Spectrum and PGS, which also had a remarkable media presence two weeks ago [see “Lebanon – Reserve estimates” in our March 11, 2013 roundup], the ministry of energy is driven by a desire to market its product, in this case Lebanon, as an attractive destination for oil and gas investments, a few days before the closing of the pre-qualification round. The Ministry chose a remarkable media vehicle, Reuters, and not a local news agency, to maximize impact, and give it additional credibility.

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