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Energy firms eyeing all areas of Lebanon’s waters

Caretaker Energy Minister Gebran Bassil, center, speaks during Lebanon's first offshore licensing round in Dbayeh, Tuesday, June 18, 2013. (The Daily Star/Mohammad Azakir)

BEIRUT: All of Lebanon’s 10 demarcated offshore blocks were nominated as areas of interest by oil and gas firms participating in the initial licensing round, the Energy Ministry said almost two weeks it is to name the blocks available for bidding. “The [nominations] confirm what we said earlier. We have oil and gas not only in the north and the south but in the center and both near and away from our shores,” caretaker Energy Minister Gebran Bassil said at a consultation workshop with the prequalified oil and gas companies.

The nominations should not be confused with actual bids and are instead part of Lebanon’s licensing strategy that according to Petroleum Administration members aims to match the interests of the government with those of the oil industry.

The companies were invited by the PA to discuss the draft model Exploration and Production Agreement and other aspects of the first licensing round.

Oil and gas supermajors are among the 46 international firms that prequalified in May to bid for offshore exploration contracts in Lebanon.

Aside from the keynote speech by Bassil, the discussions were being held behind closed doors and representatives of several oil and gas companies declined to comment on the sidelines of the workshop.

The PA is set to announce the blocks to be open for bidding on June 30. At least five blocks are expected to be put for bid but as few as one or two may be awarded depending on how lucrative the bids are, several experts have told The Daily Star.

Among issues raised by the oil and gas companies in inquiries to the PA include fiscal regimes, natural gas valuation, the percentage of Lebanese workforce required by the petroleum law and other issues including security and political concerns.

“The main bulk of these remarks are being dealt with positively by the Petroleum Administration,” Bassil said without elaborating further. “We are open for all valid concerns including political and security ones.”

The publication of a definitive model EPA and Final Tender protocol is due in summer 2013, the PA has said, but a caretaker Cabinet is not authorized to sign the decrees.

Bassil urged President Michel Sleiman and caretaker Prime Minister Najib Mikati for an urgent session to pass two decrees, in case no Cabinet is formed by September.

The two decrees, which demarcate the 10 maritime exploration blocks, govern the tender process and establish that the EPA must be passed by the Cabinet before awarding any contracts.

Presentations about the draft EPA and tender protocol, distributed at the meeting, shed light on the two documents, which are still subject for amendments at a later stage.

State shares, outlined in the EPA, will mix royalties, profit petroleum and profit taxes.

Royalties for crude oil are set between 5 percent and 12 percent, depending on the operator’s average daily production. Royalties for natural gas will be flat at 4 percent.

Profit petroleum, the government’s cut of hydrocarbon resources, will be biddable. Production and discovery costs will be recoverable up to a fixed percentage of petroleum produced.

In the absence of a special taxing system, in the first license round companies will pay regular Lebanese profit tax, which currently ranges between 15 and 20 percent.

Bids will be awarded based on a system that gives a 30 percent weight on technical factors, relating to the technical advantages provided by a consortium, and 70 percent on commercial factors that relate to the government’s share of profits.

According to the draft tender protocol, the PA will make a confidential recommendation to the minister regarding the selection of candidates based on their scores. It may recommend selecting no application for a block if fewer than three are submitted.

The exploration phase is set to last five years while production will extend to 25 years. Both phases are extendable subject to a decision by the Cabinet.

Proposals must provide for at least one exploration well in the first three years and another one during last two.

Lebanese procurers are given an edge over foreign suppliers, the EPA stipulates. Service price will carry a 10 percent preference and goods pricing will carry a 5 percent advantage.

Right holders’ must employ 80 percent Lebanese, the EPA stipulates, and firms will be required to fund training for their Lebanese personnel as well as public sector employees.

 
A version of this article appeared in the print edition of The Daily Star on June 19, 2013, on page 5.

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