This article was published in Executive Magazine.
Lebanon is finally stepping into the exploration phase. The Council of Ministers approved the awarding of exploration and productions licenses on December 14 to a consortium made up of France’s Total, Italy’s Eni and Russia’s Novatek. Contracts are expected to be signed in January 2018.
Given the context that surrounded the organization of this first offshore licensing round, the result can be considered a success. A lot of hard work was needed to overcome the numerous obstacles that stood in the way since 2013. On the other hand, expectations were so poorly managed during the previous years that many in Lebanon are not aware that the country was only at the pre-licensing phase. A more measured and realist approach is advisable for the next phase.
What can we expect in 2018?
Local legislation requires companies to establish a legal presence in Lebanon that is appropriately staffed and authorized to carry out rights and obligations arising from their exploration and production license. Also, within a period of 30 days of approving the exploration and production agreement (EPA), the companies are expected to establish a management committee to supervise petroleum activities, composed of at least one representative for each company. The State retains the right to appoint representatives to attend, as observers, the committee’s and any subcommittee’s meetings. However, companies may organize working groups among themselves without the presence of a State representative, though they are subject to decisions made at the level of the management committee and the State retains the right to review reports submitted by these working groups to the management committee.
Companies are expected to submit an exploration plan for the first period of exploration within two months of approving the EPA. They have committed to drill two wells in 2019, during the first period of exploration, one in each block. And, although the Lebanese offshore is extensively covered with seismic surveys, more surveys will be conducted prior to any drilling.
In addition, local legislation includes a number of local content clauses to encourage the local economy, including a clause requiring 80% of employees to be Lebanese nationals. An ambitious target that will be hard to reach at the beginning of activities. That is why companies will be asked to present a detailed recruitment and training program within six months after approving the EPA, to be updated on a yearly basis, and are expected to assign a budget for training public sector personnel working on the oil and gas sector.
Strategic environmental assessment
Prior to carrying out petroleum activities, a new Strategic Environmental Assessment (SEA) study will be conducted to ensure that the impact of such activities will be minimal. A first SEA was prepared in 2012 by an international consultant but was later deemed unsuitable. An “investment” gone in vain? The good news is that the report will be updated and a new version is expected in the first months of 2018.
Legal and institutional framework
In parallel to these preparatory activities, work on the legal and institutional framework governing the sector is expected to continue. An onshore petroleum resources law is expected to be discussed by the Parliament in the coming months, because the 2010 petroleum law is restricted to offshore activity and authorities would like to pave the way for future petroleum activity onshore as well.
Two other draft laws are on the agenda of parliamentary committees and are expected to draw intense debates among the various political factions: a bill to establish a sovereign wealth fund, in addition to establishing a general directorate for petroleum assets within the Ministry of Finance, and a more controversial bill to establish a national oil company, prior to any commercial discovery. In a 2016 article, we explained why it might be premature to establish one at this stage.
Also in 2018, the government is expected to launch a tender to acquire up to three floating storage and regasification units (FSRUs) to be located in Tripoli, Zahrani and Salaata, and a tender to import LNG. A project that has been repeatedly revised and pushed back since 2013. In 2017, it was featured once again in the Ministry of Energy and Water’s plan for the electricity sector.
Maritime border dispute
On another front, the issue of the maritime border dispute between Lebanon and Israel will certainly resurface in the coming year, especially with the awarding of an exploration and production license in Block 9, which includes an area that is disputed by Israel. Are companies going to operate in this area? Previous Energy Ministers tried to contain tension when blocks on the border were put up for bidding by saying that putting these blocks on offer is a way to ensure sovereignty over the area, but companies would not necessarily conduct activities within the disputed zone.
The uncertainty and the tendency for tensions in this part of the world to quickly escalate will hopefully underscore the need to resume the currently neglected mediation.
Lebanon is finally stepping into the exploration phase. This is a time to look ahead. It’s also a time to reflect on the previous phase and evaluate how it was managed in a bid to draw the right lessons from our mistakes.
In previous notes, we quickly went over the most obvious shortcomings that characterized this phase. We will examine them in more details in the rest of this note, which is reserved for our clients.