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THE EXPLORATION AND PRODUCTION AGREEMENT


On the 4th of January 2017 the Cabinet issued decree number 43, which includes the Tender Protocol (TP) related to offshore licensing rounds, and the Exploration and Production Agreement (EPA).

The EPA constitutes annex number 2 of decree number 43 dated 19 January 2017. The EPA stipulates the contractual elements of exploration and production activities, and refers to the model agreement that will be concluded between the State and the winning consortium, which is formed of at least three Right Holders including one operator within a defined area.

The EPA extends over the exploration, appraisal, development and production periods up until decommissioning and accounts for all necessary legal provisions in relation to petroleum activities.

Click here to download the Exploration and Production Agreement (EPA) decree.

The Exploration and Production Agreement (EPA) is a contract between the State and international or Lebanese oil companies, providing the companies with the right to explore for, develop and produce oil and gas reservoirs offshore in Lebanon’s Exclusive Economic Zone. It will be awarded to companies in a competitive bidding process, pursuant to the Offshore Petroleum Resources Law (OPR Law) and the Petroleum Activities Regulation (PAR). Once the companies sign the EPA, they are required to comply with all of the requirements of the OPR Law and the PAR, as well as all other Lebanese laws.

The companies that sign the EPA are called Right Holders, and there must be at least three of them at all times. One of them is the Operator, responsible for carrying out day-to-day activities, although all Right Holders are jointly and severally liable for their obligations. Under the EPA, the Right Holders may explore for oil and gas during a five year Exploration Phase, divided into two periods of three years and two years (it can be extended up to 10 years with the approval of the Council of Ministers). If the Right Holders discover oil or gas, they must appraise the commercial potential of the discovery, and if they conclude it is commercial, they must propose a plan to develop the discovery and produce oil and gas. That plan is subject to approval by the Council of Ministers. If approval is granted, the Right Holders must produce oil and gas during a twenty-five year Production Phase, which can be extended by five years if the Right Holders agree to make additional investments.

The oil and gas is split between the Right Holders and the State, as follows. First, the Right Holders must pay Royalties to the State, equal to 4% of the gas produced, and a varying percentage (between 5% and 12%) of the oil produced. Second, a percentage (determined by bidding) of the oil and gas is allocated to the Right Holders to reimburse their costs. The remaining oil and gas is split between the State and the Right Holders in proportions determined by bidding under a formula pursuant to which the State’s share increases after the Right Holders have recovered their investment. Right Holders also must pay all Lebanese taxes.

The EPA requires the Right Holders to conduct operations in accordance with Best International Petroleum Industry Standards, to safeguard health, safety and the environment and remedy any accidents, and to pay cash into a fund to ensure that facilities are properly dismantled after the reservoir is depleted. The Right Holders must give preference to Lebanese goods and services in awarding contracts, and at least 80% of the employees must be Lebanese nationals. A mandatory training program is required, to ensure that Lebanese nationals will occupy management, engineering and other professional positions.
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