Saturday, April 20, 2013

Forty-Six I.O.C.s Will Bid for Lebanon's Offshore Hydrocarbon Exploration

April 19, 2013

BEIRUT, Lebanon  The prequalification phase is over and 46 international oil companies (I.O.C.s) have prequalified to bid for Lebanon's offshore gas exploration contracts, declared yesterday Lebanon's caretaker energy and water minister, Gibran Bassil (Prime Minister Najib  Mikati had announced resignation of his government on March 22, 2013). The deadline for submitting the applications was March 28. Then, after three weeks, the Lebanese Petroleum Administration (L.P.A.) has now decided the list of the accepted companies.

According to the minister, 12 companies are entitled to bid as right-holders operators (the companies running the day-to-day field operations on behalf of rights’ holders), while the remaining 34 companies could bid as non-operators  right-holders in the licensing round that should be opened on May 2 and should last until November 4. In other words, from May the companies will have around six months in order to prepare their bids and form consortiums of at least three companies (one has to be the operator). If everything proceeds according to the minister's schedule by March 2014 the exploration licenses could be awarded. Of course, the problematic situation of Lebanon's sectarian politics and the civil war in neighboring Syria are two big unknowns, but, as a matter of fact, for the moment the scheduled timing has been well observed.

It also important to underline that notwithstanding scarce transparency and political maneuvering in the appointing process of the L.P.A., the six-member board has been able to meet the agreed-upon deadlines and to draft a valid set of bidding requirements (financial, legal, technical and environmental and Q.H.S.E. which stands for Quality, Health, Safety, Environment) that have attracted important I.O.C.s.
The 12 companies selected for bidding as operators are with no doubt between the best  I.O.C.s at the world level:
  • Anadarko Petroleum Corp
  • Chevron Corp
  • ENI
  • ExxonMobil
  • Inpex
  • Maersk
  • Petrobras
  • Petronas
  • Repsol
  • Shell
  • Statoil
  • Total.

Given their expertise, if these players find relevant gas reserves they will be able to develop them.

The government has now to pass two decrees in relation to gas exploration contracts. The first one is related to the demarcation of the 10 maritime exploration blocks (whose dimension ranges from 1,259 square kilometers to 2,374 square kilometers) to be auctioned off, while the second one has to define a revenue-sharing model. Without these two decrees it will be impossible to award the contracts. The problem now is that a caretaker government is not entitled to pass these two decrees. For the time being, their approval has been postponed until the designated new prime minister, Tamam Salam, has formed a new cabinet. Mr. Bassil is strongly determined to launch the tender on May 2 no matter whether a new government will be in place by that date or not. “Negotiations with the winning companies need the approval of the Cabinet, but that will not stop us from continuing our work” said Mr. Bassil.

With reference to the dispute between Lebanon and Israel over the maritime border, the minister pointed out that Lebanon's government is willing to extract offshore gas within the borders as delineated by the government, notwithstanding more than 330 square miles of Lebanese territorial waters disputed with Tel Aviv (in addition to this, Beirut has still some open disputes with Cyprus about other maritime boundaries). “The issue of the borders with Israel will not have an impact as long as we are alert. ... There are many cases around the world of disagreement over borders, where oil is extracted without one side harming the other.” he added.

It's crystal clear that there is a strong international interest for the Lebanese offshore gas resources. And the result of the prequalification phase is undoubtedly a great success. The government and the L.P.A. were not expecting so big a number of important I.O.C.s for both operator and non-operator roles. Only four applications were rejected for the role as operator. In specific, in relations to these four discarded applications,  one company was not accepted because it was not able to meet any of the eligibility criteria, two companies did not own assets in excess of the required $10 billion and one company was not able to demonstrate experience at depths exceeding 500 meters. On the non-operator side, 34 companies out of 38 that submitted prequalification applications are eligible to bid for a license. It was explained that the four rejected companies did not have assets valued more than $500 million or the required top-notch expertise linked to previous oil and gas operations.

Lebanon is almost 100 percent dependent upon foreign energy sources in order to meet its energy needs. Fifteen percent of Lebanon's G.D.P. is destined to pay for the country's hydrocarbons account. In other words, gas self-sufficiency could provide a powerful boost to Lebanese economy so that additional funds could be utilized with the goal of increasing the overall economic performance of the country. Lebanon has a chronic electricity shortage and the country's power plants run at the maximum of their capacity with no available operating reserve. Also in Beirut's most expensive and fashionable neighborhoods electricity is cut for three hours a day. In the countryside the situation is in some areas really dramatic with few hours of energy per day. The state electricity company runs at loss. According to data from Mr. Nassib Ghobril, the head of economic research at Byblos Bank, a Lebanese bank, the electricity deficit costs the Treasury on average $2 billion per annum, while in 2012 the paid bill reached almost $3 billion.     

This dependence upon external energy sources was until today a circumstance common to all the countries now involved in this gas rush in the eastern Mediterranean Sea. Some of these countries, like Israel, Turkey and Cyprus, are well ahead in developing their gas resources, while now Lebanon is trying to catch up soon and with no doubt its offshore gas could really help pay off the country's debt to G.D.P., which is among the highest in the world.

On April 22-23 I will participate in the Lebanon Oil & Gas 2013 Summit organized in Beirut, Lebanon by International Research Networks (I.R.N.).  This is the webpage of the event: