Lebanon approves missing oil & gas decrees

Lebanon’s first licensing round for offshore hydrocarbon exploration is back on track. In its first session since it gained confidence, the government signaled its determination to move forward by approving on January 4 two decrees that are essential for pursuing the tender, which was launched in May 2013 and has been on hold since. The first is a decree delineating offshore blocks, and the second is related to the tender protocol and the model exploration and production agreement. The government also examined the draft of the petroleum tax law.

Although not a top priority for this cabinet, which has to address more urgent issues, the government needed to start off its mandate on a high note and give an image of efficiency before tackling more complex issues that will take long months to materialize.

For years, we have been talking about the need for a “large enough consensus” to unblock the political stalemate in Lebanon, and with it the first licensing round. The first sign came with the election of President Michel Aoun, later confirmed by the relatively swift formation of a national unity government headed by Prime Minister Saad Hariri.

Next step is for the Parliament to approve the petroleum tax law. A second pre-qualification round is also being considered, three years after the organization of the first round, to allow more companies to participate in the tender.

Forty-six companies pre-qualified in 2013 for the first licensing round. Clearly, not all of them did so to place bids. How many are still interested in being involved in Lebanon? How many will express an interest in case a second pre-qualification round is opened? More importantly, how many would be ready to convert this interest into actual bids?

After a few difficult years for the industry, with a sharp decline in oil prices that has affected their appetite for exploration in certain areas, including the Eastern Mediterranean, a soft price recovery is generally expected by analysts in 2017. On the other hand, the LNG glut, expected to persist until the early 2020s will mean gas prices will likely stay low.

Lebanon will have to compete with other players in the Eastern Mediterranean that are several steps ahead. The third licensing round in Cyprus attracted six bids from eight companies, drawing some of the biggest names in the industry, no doubt lured in by the discovery of Zohr in Egyptian waters not far from the three Cypriot blocs on offer. Israel’s first offshore licensing round which opened in November 2016 is also an opportunity to assess foreign companies’ interest in being involved in the region at this stage. The bid round will close on April 21, 2017 and results are expected three months afterwards. It’s worth adding a reminder here: companies operating in Israel, cannot, in principle, operate in Lebanon.

Managing expectations: One of the most visible weaknesses in the past three years. Judging by the hype surrounding the sector, the Lebanese (political class, media and society at large) are placing irrational expectations on the nascent sector. Challenges are brushed off amid the confusion, and it is difficult to discern credible voices.

Lebanon has signaled its intention to cross into the implementation phase. For the first time in three years, optimism is justified. A strategic monitoring anticipating trends and minimizing vulnerabilities associated with emerging or aspiring producers is the first step to capitalize on opportunities in Lebanon and the region.

About MESP – Oil & Gas

MESP is a political risk consultancy. We provide companies, public sector institutions and other stakeholders interested in the emerging oil and gas sector in Lebanon and the wider Eastern Mediterranean with the strategic insight needed to give them a competitive advantage in a complex and continuously evolving environment.

The objective of our oil & gas webpage is to offer a preliminary insight into our analysis. We also use this platform to help set the framework for a rational and reliable debate on oil and gas in a country, and a region, that is finding it difficult to manage expectations and is struggling to develop an accurate reading grid.

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