The Lebanese Petroleum Administration received two bids in Lebanon’s oil & gas licensing round, Energy Minister Cesar Abi Khalil announced in a press release on October 13. Both bids were presented by the same consortium made up of Total, Eni and Novatek for blocks 4 and 9. India’s ONGC, which was planning to present an offer according to the Indian petroleum minister, reportedly changed its mind after authorities turned down its request for a 3-month extension of the deadline to place bids.
The tender closed on October 12, 2017, four years and a half after it was first launched in May 2013. If the circumstances surrounding the tender weren’t challenging enough (overall, unfavorable conditions for offshore exploration, and years of political deadlock locally) Lebanon’s petroleum law imposes additional difficulties on companies, since they must form consortiums of at least three companies to be able to place bids. These factors combined explain why only two bids were submitted. Disappointing for some, but certainly a relief for those who were following the tender from the start, and quite an achievement, given the context.
One of the blocks that received a bid (Block 9) includes an area that is disputed by Israel, which might come as a surprise. But at the same time, it is one of the most promising blocks. When the LPA surveyed qualified companies in 2013 to assess their interest in offshore blocks, Block 9 received the highest number of votes.
The LPA will evaluate the bids within a maximum period of one month and submit a report to the Minister of Energy and Water. A provisional winner will be selected and negotiations will take place, focusing exclusively on the technical side of the offer. Lebanese authorities have indicated they would like to speed up the process and they hope to sign the first contracts by the end of this year.
The first licensing round saga is finally (almost) over. Frequent power vacuums within the executive branch since 2013 significantly complicated the political decision-making process, affecting among other things the first licensing round. Political détente following the election of a President and the formation of a government at the end of 2016 facilitated decision-making, with positive repercussions on various public affairs, including on the nascent Lebanese oil and gas sector.
Two of the companies in the consortium have a well-established presence in the region. Eni is a major actor in the Eastern Mediterranean. Zohr, its latest success offshore Egypt, has revived interest in exploration in the whole region. The Italian company has expressed interest in the Lebanese offshore for years. Few other companies have demonstrated a similar determination to be involved here. Given its presence in the region and the synergies it could create, it is an undeniable advantage in the current context. Total, for its part, has a long-established presence in Lebanon through its distribution arm. The French company confirms its interest in exploration in the Eastern Mediterranean despite a disappointing drilling result in Cyprus this summer. The presence of Novatek in this consortium is highly symbolic and reflects growing Russian interest in the region. A previous bid by the company in Cyprus in 2012, in partnership with Total, was unsuccessful. If it is luckier this time around, it will mark the first Russian involvement in exploration activities among “newcomers” in the Eastern Mediterranean (Cyprus, Israel and Lebanon).
Today’s announcement can be considered a success given global market conditions and – let’s face it – obvious difficulties in organizing the tender. There will be time for constructive criticism in the future. But the time now is for licensing. That said, expect a political backlash as a reaction to the fact that only one consortium presented bids in the licensing round. The opposition will claim the tender’s outcome reflects the will of the ruling class and will certainly bring out corruption charges, or simply rumors, in Lebanon and elsewhere, to back up its claims.