[Oil & Gas Updates]: Weekly Roundup, May 6, 2013

Lebanon – First licensing round:

Lebanon’s first licensing round officially opened on May 2, 2013, as scheduled. The launching ceremony, widely attended by representatives of companies eligible to bid, was held two days in advance, on 30/04, at the Phoenicia Hotel in Beirut. Failing to approve the now famous decrees (specifying offshore blocks and their coordinates and approving the model exploration and production contract) thought to be required to pursue the process did not prevent the launching of the tender.

Starting May 2, companies wishing to participate in the tender are requested to indicate, by June 15, which of the 10 blocks they are most interested in. The Petroleum Administration (PA) and the Ministry of Energy and Water will then announce, on June 30, if there are no delays, the five blocks that will be open for bidding. At the end, a maximum of four blocks will be awarded. The map of offshore blocks still needs government approval, and, although unlikely, the next cabinet may decide to redraw or introduce certain changes to the boundaries of offshore blocks.

Offshore blocks [Source: www.lpa.gov.lb]

The model contract faces similar uncertainties. It is now available for pre-qualified companies to view and comment on. Comments must be submitted through the PA’s new website, also unveiled on May 2. The PA may then amend the model contract before submitting it to the Council of Ministers for approval.

If the formation of the next cabinet drags on for months, caretaker Energy Minister Gebran Bassil said that President Michel Slaiman and Speaker Nabih Berri may authorize the caretaker cabinet to approve the two decrees. They also must be willing to take such as step. If the decrees are not approved by September 2, 2013, Bassil, as caretaker Energy Minister, is authorized to extend the bidding period.

Local political rivalries are fuelling the process, providing the Minister and his team with further incentives to speed up work and respect seemingly complicated deadlines. When the time comes, listing their achievements is a clear (though not determinant) advantage, and also one of their strongest assets for retaining the Ministry of Energy and Water. On the other side of the spectrum, political ambitions are justifying persistent attacks. But, instead of focusing on programs and evaluating policies and outcomes, they are increasingly taking a personal turn, as is the norm in Lebanese politics. Progressive Socialist Party (PSP) leader Walid Joumblat launched another virulent attack on 29/04 against Bassil and the “absurd” political party he belongs to, claiming that the discovery of offshore oil and gas in Lebanon is “old” and was not made by “those newcomers to Lebanese politics.” He referred to the work of Lebanese geologist Ghassan Qanso (deceased in 2005) in the mid-1970s, thwarted by the outbreak of civil war in 1975, as a roadmap to manage the emerging oil and gas sector. Even counter-attacks are becoming personal. During the launching ceremony on 30/04, Bassil denounced the 1975 (i.e. civil war) mentality and said Lebanon’s wealth will be extracted and will benefit future generations, not the 1975 political class. Even more personal, the launching ceremony opened with an animated story (published by the Ministry as a booklet) showing Bassil, guiding his son on a virtual trip across Lebanon on 2020, showing him the achievements that the exploitation of offshore resources have permitted: a metro system in Beirut, fast rail along the coast, public beaches, water dams benefiting the Lebanese and the Cypriots, a pipeline connecting power plants along the coast etc. The virtual Bassil hoped his son would now understand why he was deprived of his father over the past few years and that all the time he spent away from him did not go in vain.

The Ministry’s insistence to launch the tender on time is commendable, and breaks with the habit of regularly disregarding deadlines. On the other hand, and as a consequence, a lot of uncertainties now surround the process. We hope that this will not affect the initial enthusiasm demonstrated by international oil companies in earlier stages of the process.

Lebanon – Petroleum administration:

Lebanon’s Petroleum Administration unveiled on May 2 its official website [http://www.lpa.gov.lb]. The issue might not seem fundamental at first, but it is worth noting that this is another deadline the Ministry of Energy and the PA have respected. As of May 2, pre-qualified companies can view the model exploration and production agreement and submit their comments to the PA through the website. In addition, they are invited to register to get access to the License Round Platform where the PA will be announcing and sharing information and documents related to the First Licensing Round. The website includes a Data Room and provides the Arabic text as well as a non-official English translation of some regulations related to offshore petroleum activities in Lebanon. It is modern and user-friendly. Some parts are still under construction (“Sustainability”). The only (but major) concern is that it doesn’t provide enough information about the PA. The “About” section only introduces the six units operating under the PA and their tasks. Decree No 7968 governing the PA is missing. The six board members are not mentioned, or introduced to the public. For the sake of transparency, the website must provide an organization chart, and list the employees working for the PA, including (but not limited to) the six board members, as well as their yearly salaries and benefits. The CVs of the board members should also be posted. For the moment, and most likely as a result of deadline pressure, the website is only available in English. But the website must not only serve as a platform of communication between the PA and petroleum companies. It is virtually the only direct link between the PA and Lebanese citizens. We trust that an Arabic version will be online soon.

Lebanon – Maritime border dispute:

When the local political class is not busy bickering over the Ministry of Energy and Water, local politicians still manage to find new opportunities to lash out at each other, now increasingly involving, in one way or another, the country’s offshore resources. Just a few months ago, the energy dimension was almost negligible in local politics, ministerial candidates struggled to avoid the over-complicated Ministry of Energy and Water. Now it crystallizes political divisions, and all signs suggest that this tendency is on the rise and is not expected to drop. After his meeting with Russian Deputy Foreign Minister Mikhail Bogdanov on 29/04, Parliament Speaker Nabih Berri seized the opportunity to denounce President Michel Slaiman (without explicitly naming him) and caretaker Prime Minister Najib Mikati, accusing both of neglecting the maritime border dispute with Israel. He also held former Prime Minister Fouad Siniora (politically) responsible for the serious errors in demarcating the borders during his time in office, and stopped short of blaming those responsible of demarcation on the ground, all of whom are now aspiring to control the Ministry of Energy and Water.

Lebanon – Revenue management:

An IMF delegation is currently in Lebanon, preparing a comprehensive report covering a wide range of issues, including: the implications of passing the salary scale bill for the civil service and revenues resulting from the possible exploitation of offshore resources. The IMF delegation is inquiring about Lebanon’s ability to manage these resources. According to a source quoted by Lebanese daily al-Akhbar, the delegation is aware that “if these revenues are managed similar to how public funds have been managed in the past 20 years their development impact is likely to be very limited” [Link in Arabic]. Many Lebanese seem to share the same concerns. The billboard campaign launched by the Ministry of Energy and Water and the Petroleum Administration announcing the beginning of the exploration phase and illustrating how revenues will be spent has been widely parodied online. The initial message says “our country now has oil…” followed by a series of possibilities, which change from one billboard to another, painting a rosy future: “… to develop the transportation network”, “… to arm and support the army” [see “Eastern Mediterranean – Security of offshore resources” in our April 8, 2013 roundup], and a third one lists different types of social spending (health care, education and an old-age pension system). A sample of parodied ads can be viewed here. Among these: “Our country now has oil … for hosting the Olympic Games,” “Our country now has oil… for space exploration,” and “Our country now has oil … for military dominance” etc. According to the Offshore Petroleum Resources law, proceeds arising from petroleum activities will be deposited in a sovereign wealth fund, taxes and royalties will go to the Treasury. The current fight to control the Ministry of Energy and Water does nothing to reassure the Lebanese. The call for help addressed by some to deceased experts, calling for the adoption of their 1970s work as a roadmap to manage the current petroleum sector [see “Lebanon – First licensing round” above], suggest that their approach may need to be updated.

Cyprus – Israel:

Cyprus President Nicos Anastasiades arrived to Israel on Thursday night (02/05), on a private visit to attend Orthodox Easter celebrations, two days before beginning the official part of his visit, which started with a meeting with PM Benjamin Netanyahu on Sunday morning, shortly before the Israeli PM left for a five-day visit to China. On the form, things seem to have changed since the February 2012 visit by PM Netanyahu to Cyprus, when Israel sought to replace its deteriorating ties with Ankara by strengthening its relations with Nicosia. The current rapprochement between Israel and Turkey, which remains to be confirmed, offers an additional gas export option to Israel, which seems to have provoked some sort of nervousness among Cypriot officials who have multiplied visits to Israeli in recent weeks. Bilateral meetings preceded the President’s official visit, which will focus on energy and security issues. Minister of Energy, Commerce, Industry and Tourism Giorgos Lakkotrypis visited Israel on 08/04, followed by a visit by Defense minister Fotis Fotiou on 02/05. After meeting his Israeli counterpart Moshe Yaalon, Fotiou announced that the deepening of Cyprus’ defense relations with Israel poses no threat to anyone and that similar cooperation with other neighboring countries such as Greece, Lebanon or Egypt is possible. Cyprus is now considering to allow the Israeli Air Force to use its base in Paphos to patrol the Eastern Mediterranean. Although securing offshore oil and gas installations and preventing terrorist attacks are the main reason behind the increased military cooperation between Nicosia and Tel Aviv, opening a Cypriot base to Israeli fighter jets is likely to provoke unease among some of Cyprus’ neighbors, including Lebanon. Added to the recent statement by Iran’s IRGC commander Major General Hossein Salami that Iran intends to stretch its “security border” to the Eastern Mediterranean, the region seems to be attracting more, not less, tension.


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