Lebanon looking to move forward with offshore licensing despite risks

On 26 April the Lebanese Petroleum Administration (LPA) announced the results of the second pre-qualification round for the country’s first offshore licensing round, which was re-launched in January after its indefinite suspension in August 2014.

The results of the prequalification round are encouraging, with a large number of international oil companies participating, including supermajors and large national oil companies.

Significant industry interest in the Lebanese offshore stems from the number of hydrocarbon already discovered in the Levantine Basin. These potentially important prospects have generated significant interest in this round; however risks remain that could limit the success of the round when it closes in September.

Although results of the prequalification round suggest industry interest, the prequalification does not necessarily mean the licensing round as a whole will be successful. There are a number of important obstacles still facing those wishing to obtain licenses. Firstly, the parliament, whose mandate expires in June, is yet to pass new legislation regarding petroleum income taxation. This leaves uncertainty regarding the fiscal framework, though LPA has suggested that if the legislation fails to pass it may proceed with the round under the existing tax code.

Additionally, there is uncertainty surrounding the capacity to export gas from the region. There is already limited in-place infrastructure slowing the pace of development of existing projects, so the late start of the Lebanese industry may delay commercialising discoveries.

Finally, there is a significant risk to potential operations along the disputed maritime border with Israel, where three of the blocks on offer may be affected. It appears unlikely that this dispute could be resolved in the foreseeable future.

Although the risks to entering the Lebanese upstream sector are significant, because it is underexplored and the recent political situation has been unstable, the rewards may be great. The success of the licensing round within the current schedule will depend on how potential bidders weigh the possible rewards against the risks.