After years of delays, Lebanon finally kick starts oil & gas licensing
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After years of delays, Lebanon finally kick starts oil & gas licensing

18 Sep 2018

After years of delays, Lebanon kick-started the process of licensing its oil and gas reserves in 2017, with the passing of two decrees mapping out the conditions for auctioning energy assets, and the passing of a draft petroleum tax law laying out payment terms for future licensees.

After years of delays, Lebanon finally kick starts oil & gas licensing
Beirut estimates the country has 96 trillion cubic feet of gas reserves and 865 million barrels of oil located offshore.

After years of delays, Lebanon kick-started the process of licensing its oil and gas reserves in 2017, with the passing of two decrees mapping out the conditions for auctioning energy assets, and the passing of a draft petroleum tax law laying out payment terms for future licensees.

The petroleum law stipulates a 20 per cent income tax on petroleum operations and a fixed stamp-duty fee of LBP5m ($3,311), with the government’s share of production not accounted for.

On 29 January this year, the Lebanese Petroleum Administration (LPA) then launched the first licensing round since 2013, offering five offshore blocks – 1, 4, 8, 9 and 10 – to potential bidders.

Beirut estimates the country has 96 trillion cubic feet of gas reserves and 865 million barrels of oil located offshore, but Lebanon has lagged behind Egypt, Israel and Cyprus in developing its Mediterranean assets. More than 90 per cent of Lebanon’s energy needs are met by imports – a significant drain on the national budget. Domestic gas production would therefore lower costs and boost the underfunded power sector.

Licensing delays

However, the licensing process was marred by delays, from the late publication of prequalified companies in April to the extension of the bid deadline from 15 September to 12 October due to the late passage of the petroleum law. It finally ground to a halt amid Lebanon’s political crisis.

On 20 November, five days after the exploration and production agreements were originally due to be signed, Lebanon Minister of Energy & Water Cesar Khalil announced his signing of a document calling on the companies that had submitted bids for the blocks ‘to negotiate the technical proposals’.

However, while the firms prequalified in 2013 included oil majors such as UK/Dutch Shell, France’s Total and the US firms Chevron and ExxonMobil, as well as newly prequalified Indian operator ONGC Videsh and numerous non-operator firms from the Gulf –including four from the UAE – only one offer was forthcoming.

This was a bid for blocks 4 and 9 by a consortium of Total (40 per cent), Italy’s Eni (40 per cent) and Russia’s Novatek (20 per cent). Block 9 is one of three controversial blocks located in a maritime area contested by Israel.

This agreement was finally signed in February 2018, following evaluation and approval, with terms that will see the state receive revenues of between 65 and 71 per cent for Block 4, and between 55 and 63 per cent for Block 9. However, the first revenues will likely be some way off, with the first well due to be drilled in 2019.

Although the LPA stated that exploration work in both blocks will begin simultaneously and last five years, a source tells MEED the consortium plans to drill the first well in Block 4 in 2019, but the first well in Block 9 only in 2020.

The three companies of the consortium have now set up their local entities in Lebanon and are presently recruiting personnel and setting up infrastructure for the exploration works, according to the source.

Fresh round

As to the fate of the remainder of the blocks, Khalil announced in April that he had asked the LPA to start preparing for a second oil and gas offshore licensing round, although he did not specify a likely timeline.

However, Beirut is not expected to schedule another licensing round of its offshore oil and gas blocks in 2018. Instead, the plan is to evaluate the exploration results from the two initial blocks.

“[The Lebanese Government] will gradually open those other blocks, [1, 2, 3, 5, 6, 7, 8 and 10] for licensing, but I think they are going to take their time,” a source told MEED in February. “I don’t think any more licensing rounds will happen in 2018; perhaps one in 2019.

“We want to see if anything worthwhile is going to come out of the two blocks awarded. We have potentially good seismic surveys; those are good indicators, but you never know unless you drill. We need to drill first to find out, and that’s the wise thing to do now.”

Another reason that Lebanon is unlikely to organise another licensing round this year – aside from the ongoing political impasse over the formation of a new government – is Beirut’s new focus on developing its onshore reserves, with lawmakers now absorbed in the task of delivering a draft law to that end.

This article first appeared in Offshore Technology sister publication MEED.