Lebanon’s government in April launched a second licensing round for offshore oil and gas exploration, with the deadline to submit offers set for Jan. 31, 2020.
Five maritime blocs are open for bidding - three in the south (Blocs 5, 8 and 10) and two bordering the northern border with Syria (Blocs 1 and 2). Much of Bloc 8 lies in territory that is the subject of a dispute with Israel.
Blocs 1, 8 and 10 were all put forward as part of Lebanon’s first licensing round in 2017, but attracted no bids.
According to the Lebanese Petroleum Administration, these five blocs were selected to enhance the competitiveness of the second licensing round, in part because they are geologically diverse and differ from the blocs already awarded, namely Blocs 4 and 9.
The LPA notes that border blocs were also specifically selected. This is in an apparent bid to assert Lebanon’s sovereignty over areas that are the subject of disputes.
It is noteworthy that LPA board members are continuing to go about their roles despite their terms having expired in December. LOGI believes this poses a governance issue and calls for Cabinet to issue a new decree that would see the LPA enjoy full legal authority once again.
The second licensing round will notably not include a separate pre-qualification phase preceding bidding, as had been the case in 2013 and 2017. The evaluation of applications will instead take place in a two-step process, where the LPA will evaluate pre-qualification applications, publish the results, and subsequently assess the bids.
This decision allows companies more time to submit applications: during the first round they had only had from April to October, now they have from April till January.
The decision to launch this second licensing round today makes commercial sense as an attempt to capitalize the large appetite oil and gas companies are showing for the Eastern Mediterranean, Charles Ellinas, an oil and gas expert with 35 years experience, told LOGI.
“Lebanon is not isolated: it is a part of the east med, and right now there is a lot of interest in the east med internationally because of the big discoveries,” Ellinas said.
The most recent finding came on April 15, when oil company Energean announced a “significant new gas discovery,” in the Karish North field in Israel’s northern waters, near Lebanon’s exclusive economic zone.
“Alot of companies are looking at the region and prospects to participate. In a way that justifies calling for another licensing round now … it’s the right time to attract companies to come to the region,” Ellinas said.
While the commercial angle is important, some have raised concerns over changes to the licensing process, specifically regarding the merging of prequalification and bidding.
“It deprives observers of a chance to react after the prequalifications are done,” Matthieu Salomon, Senior Governance Officer at the National Resource Governance Institute, told LOGI.
Currently, the official timetable as included in the updated Tender Protocol for the 2nd licensing round sees the evaluation of bids taking place directly after prequalification applications are evaluated, and for a period of about three weeks, before negotiations take place with companies for two weeks. In order to maintain a window for comment by civil society, it is important that the government sticks to this timetable.
The most important factor in the process is the criteria on which companies will qualify for bidding, and the transparency of the process. Here, LOGI has further questions as to what has been changed.
Specifically, LOGI has advocated for the closure of a loophole in the previous licensing round that allowed companies with no relevant experience in the sector to qualify if they partner with companies that do have that experience. Has this loophole been closed?
On the other hand, in an effort to attract more bids, the operating companies in the consortium are required to have engaged in petroleum development at depths exceeding just 300 meters, while the standard had previously set at 500 meters.
Elinas notes: “300 meters or 500 meters is not a huge difference. It's only when you get to 1200 meters that you need specialist knowledge.”
“What is important is that at least one participating company has all the experience necessary for drilling in any one bloc, so if the depth ranges from 300 meters to 2000 meters, one company,” must have the experience necessary to drill at the lowest depth, he said.
But here again, LOGI asks why the standard has been lowered? One technical opinion, voiced by Engineer Talal Slim is that the LPA is aiming to expand the set of potential qualified operators.
The new criteria did not call on companies to submit their anti-corruption policies, something which LOGI has called on them to do, as did Elinas. “All companies must have clear anti-corruption policies and demonstrate they are applying these,” he said.
This step is important because some companies are known to have stringent corruption regulations, while others do not.
If all goes according to plan and bids are successfully submitted, the LPA sees prequalification applications being evaluated in the first weeks of February 2020, bids evaluated soon after, and
Cabinet approving the new licenses by mid April 2020, paving the way for the exploration process to begin.
Over this process, and as per the Strengthening Transparency in the Petroleum Sector Law, the Energy Ministry and LPA are obliged to publish all questions and clarifications submitted by companies intending to pre-qualify, though without mentioning the names of the respective companies in order to preserve their privacy. This has also been noted in the updated Tender Protocol article 6.
Although the updated Tender Protocol clearly states that the LPA will maintain the ids evaluation report confidential (article 16.5), the Minister of Energy and Water is required by law to publish the recommendations of the LPA regarding the bidding round, including their ranking (Strengthening Transparency in the Petroleum Sector Law number 84/2018, article 9.1.14).
Photo source: Website of Lebanese Petroleum Administration