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Q1. What is a license?
An exploration and production license is given to a consortium of national and/or international oil companies that would allow them to search for commercially feasible deposits for the extraction of petroleum resources in a given geographical area or block.
Q2. What type of contract did Lebanon adopt?
The Exploration and Production Agreement (EPA) is a contract between the State and the international or national oil companies, providing the companies with the right to explore, develop and produce oil and gas offshore Lebanon’s Exclusive Economic Zone. Once the companies sign the EPA, they are required to comply with the Offshore Petroleum Resources Law (OPRL) and the Petroleum Activities Regulations (PAR), as well as other applicable Lebanese laws and Decrees. Click here for more information. Click here
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Q3. What is a Production Sharing Agreement (PSA)?
Under the Production Sharing Agreement (PSA) the Lebanese State is the owner of hydrocarbon resources and engages a Consortium of international oil companies – formed of at least three International Oil Companies including one operator – as a contractor to provide technical and financial services for exploration and development operations within a specified area.
While the consortium bares all exploration risks and associated costs, production is split between the contractors and the State.
Lebanon adopts a Production Sharing Agreement, which elements include a royalty, cost petroleum, and profit petroleum. The PSA does not include any signature or production bonuses.
Q4. How are petroleum licenses awarded?
A company that is interested in acquiring an EPA for a specific block should first be pre-qualified based on technical, legal, financial and QHSE criteria. Pre-qualified companies are then invited to participate in an open and competitive licensing round defined by the Tender Protocol and present their technical and commercial proposals to the LPA on the 12th of October 2017.
Within a month the LPA will evaluate the technical and commercial proposals. The total technical mark and total commercial mark will be weighted 30% and 70% respectively, and the best offers will be ranked and presented to the Minister of Energy and Water. In turn, the Minister of Energy and Water will invite the first ranking provisional winner for a specific block to proceed to the final negotiation stage with respect to the technical proposal.
Finally, the Minister of Energy and Water will present a report to the Council of Ministers containing the results of the negotiations and a recommendation that the State signs an Exploration and Production Agreement with the provisional winner. The Council of Ministers has one month – until mid-November 2017 – to decide on the award of contract(s).
Q5. How many companies have been pre-qualified?
Following the first pre-qualification round in 2013, 46 companies have been pre-qualified out of which 12 right-holders “operators” and 34 right-holders “non-operators”.
Companies that were pre-qualified in 2013 are still eligible to participate in the licensing round provided they still meet the eligibility criteria based on which they were pre-qualified, and submit financial statements for 2014 and 2015 (audited) and for 2016 (unaudited).
A second prequalification round took place in 2017 to give the opportunities to new companies to participate in Lebanon’s first offshore licensing round. In 2017, 10 new submissions were received including 2 Operators and 8 Non-Operators.
All, in all, the overall number of pre-qualified companies sums up to 51 companies.
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Q6. What is the difference between an operator and a non-operator?
The Offshore Petroleum Resources Law (OPRL) defines the Exploration and Production Agreement (EPA) as an agreement concluded between the Lebanese state and at least three Right Holders. The EPA regulates the relationship between the state and the Right Holders for the performance of exploration and production activities within a defined area subject to Lebanese Law. When awarding an EPA, the Council of Ministers, based on a proposal by the Minister in consultation with the Petroleum Administration, approves the appointment of an Operator amongst Right Holders. No change of Operator may take place without the approval of the Council of Ministers.
The Right Holder Operator manages the day-to-day field operations on behalf of other Right Holders through handling the design and execution of the exploration programme; the well design, drilling, completion and production; and the engineering, infrastructure and facilities construction and maintenance.
The Right Holders ensure that the Operator conducts prudent Petroleum Activities, and they participate in the Managing Committee of the Consortium along with the Operator and other Right Holders in such a way to provide co-financing for the project, and to undergo commercial and marketing activities in addition to technical inputs.
Q7. What are the stages of petroleum activities?
Petroleum activities can be divided into six phases: Reconnaissance/seismic acquisitions (2-5 years); exploration (3-6 years); appraisal (1-2 years); development (1-4 years); production (up to 30 years); and abandonment.
Q8. When would Lebanon start having revenues flowing?
Based on the stages of petroleum activities, revenues would start flowing once production starts – that is once a commercial discovery is made i.e. it can be produced economically, approximately 8 to 10 years after the start of the exploration activities.
Q9. What are the objectives of Lebanon’s first offshore licensing round?
Lebanon’s first offshore licensing round has two objectives, namely: striking a commercial discovery in Lebanon’s Exclusive Economic Zone and retaining Lebanon’s sovereign rights with respect to its prospective wealth around its borders.
In this regard the open blocks 1, 4, 8, 9 and 10 were chosen to serve the above objectives.
Q10. Will the five open blocks be awarded?
Lebanon abides by a gradual licensing policy, and the number of blocks to be awarded will depend on the quality of the bids received, the overall evaluation in the context of the block concerned and the objectives of the licensing round being met.
As per the Tender Protocol, applicants are allowed to bid for any of the open 5 blocks, however, any given Applicant may only be awarded a maximum of 2 blocks in the first licensing round. Furthermore, the LPA can recommend that no blocks are to be awarded and the Council of Ministers reserves the right to award no more than 4 blocks in the first offshore licensing round.
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