BEIRUT -  Lebanon’s share from the potential gas revenues will be at least 55 percent and this is line with the world average, Energy and Water Minister Cesar Abi Khalil said Friday. Speaking at a news conference to reveal more details of the contracts awarded to France’s Total, Italy’s ENI and Russian Novatek, the minister explained that Lebanon managed to get a very good offer after long and exhausting negotiations with oil companies.

“On the commercial level, the government’s cut was based on nine different scenarios. Block four, for example, the government’s share ranged between 55 percent to 71 percent and this is in line with the international average. As for block nine, the state’s share was from 55 percent to 63 percent,” Abi Khalil said.

But despite earlier upbeat projections, Lebanon cannot bask in the sun until the oil companies extract commercial quantities of gas, according to experts.

Some banks have estimated the potential value of gas off the Lebanese coast at $600 billion, but experts insist that these projections are not based on scientific facts.

The minister said the three companies will start the actual drilling in blocks four and nine in 2019.

He added the companies will start drilling five offshore wells in each of the two licensed blocks in a bid to find oil and gas reserves in 2019.

“The drilling process will begin in 2019, thus 2018 will be dedicated to making preparations,” Abi Khalil said during a media conference to discuss the next steps after Cabinet’s approval Thursday.

He said the first exploration period for oil will take three years and the second period will be two years but will be renewable.

Abi Khalil said Lebanon will “assert its resource rights” along the length of its maritime territories in block nine.

Lebanon has been vocal in asking for the U.N.’s assistance in designating a triangular, 870-square-kilometer area of disputed territory on the southern maritime border. However, Israel opposes the involvement of external mediators in the matter.

“The objectives of the first licensing cycle have been achieved successfully,” Abi Khalil said.

Abi Khalil explained that he had invited the oil companies to negotiate the technical offers under his authority, and that “as a result of negotiations on technical offers, we obtained a commitment to drill five wells in each of blocks 4 and 9.”

The minister said that negotiations with the oil companies had been difficult, but in the end, the contract issued by the Lebanese state to the oil companies was endorsed by Cabinet without any amendments, which he described as a major achievement.

“The first licensing session concerned the most transparent [oil companies] in the world, and [politicians] accusing us of distributing wealth [corruptly] do not deserve a response,” he said, responding to criticism that the process of bidding and negotiations leading up to the Cabinet decision lacked transparency.

An oil and gas expert also expressed concerns that the process of bidding and negotiations leading up to the decision Thursday had lacked transparency.

“The recommendation [in Cabinet was to accept the agenda item] because, Abi Khalil said, it was feasible for Lebanon [to achieve] – but they didn’t disclose the bid,” Diana Kaissy, the executive director of NGO, the Lebanese Oil and Gas Initiative, told The Daily Star Thursday. “We don’t know [technical details], again, because it was not disclosed,” she said.

However, during his media conference, Abi Khalil asserted that oil and gas exploration would be very beneficial to the country’s economy, by creating new jobs, with a preferential treatment to Lebanese suppliers and employees, and securing a local source of energy that is more cost effective and pollutes less than the heavy fuel oil currently used.

“Any project that exceeds $5,000 needs a public tender [through the Public Tender’s Department], and the Lebanese people will be given priority [in bidding],” he said explaining how the process will benefit local companies and remain free of corruption.

A Lebanese Petroleum Administration official said LPA worked for several years to reach this important agreement with the oil companies.

“To reach this historical milestone, several years of preparatory work preceded and were necessary to pave the way for the start of the petroleum journey. Indeed, as of 2010 the legislative and regulatory frameworks governing petroleum activities were put in place starting with the Offshore Petroleum Resources Law (Law 132/2010) and the establishment of the Lebanese Petroleum Administration in 2012,” the official said.

The official talked about the challenges and difficulties that the LPA encountered during the talks with the oil companies.

Some of these challenges involved the cost of drilling.

“Indeed, the opportunity cost of not drilling any well outweighs the cost of establishing the nascent sector despite relatively less advantageous market conditions compared to previous years. In this regard, it is still more advantageous for Lebanon to be a latecomer, start exploration investments which have the potential to alleviate energy insecurity domestically while promoting Lebanon as a major energy player regionally provided a commercial discovery is made,” the official said.

The LPA insists that one of the advantages Lebanon has over some countries in the region is that the country has nearly completed most or all of the seismic survey.

“Lebanon’s main advantage lies in the extensive de-risking of its offshore through the acquisition of 2D and 3D seismic data early on, in addition to its stable, modern and predictable legislative framework. Also, Lebanon has put in place a system that promotes competition from the pre-qualification process until the bidding procedure. In light of the current market situation, it is common practice that companies pool their resources to jointly fund risky projects and thus create the needed economies of scale,” the official said.

He added that Lebanon faced more stringent competition with neighboring countries to attract exploration investments compared to 2013 and 2014 when oil prices fluctuated between $100 and $120 per barrel, as International Oil Companies’ exploration budgets also dropped by about 58 percent.

“Nevertheless, the industry was able to adapt by improving operations efficiency and by evaluating business strategies and portfolios as IOCs still need to secure a strategic long-term presence and market share despite low oil prices,” the official said.


Copyright © 2017, The Daily Star. All rights reserved. Provided by SyndiGate Media Inc. (Syndigate.info).