Lebanon Lines Up Offshore Blocks for Award
Lebanon announced December 15 it would approve two bids by one consortium to explore for oil and gas in its offshore Exclusive Economic Zone. The consortium – French Total, Italian Eni, who are both present offshore Cyprus, and Russian private concern Novatek – made two separate offers in mid-October for the rights to explore Block 4 in northern waters and Block 9 in the south. At a press conference December 15, Cesar Abi Khalil, Lebanon’s minister of energy and water, gave few details of the offers and said the contracts would be signed by the end of January.
The minister said he would sign exploration and production agreements, with drilling expected first in Block 4 sometime in 2019. After appraising drilling results from first well the consortium would submit plans of where it might continue drilling in the block, and where it would drill its first well in block 9.
Abi Khalil gave ranges for what the state’s take of revenues might be. For block 4 the minister gave a range of between 65% and 71% of the total generated revenue, and for block 9 a range from 55% to 63%.
The state’s take is its portion of generated revenues that is directly determined by the consortium's revenues minus recoverable costs. Lebanon has several tools it will use to capture revenue.
This fall parliament legislated a new corporate income tax rate specific to the sector set at 20%. In addition to taxes the state will impose royalty rates on oil and on gas and the model contract includes several other biddable parameters that will bring in revenue.
The model contract imposes a royalty on gas of 4% while that for oil ranges between 5% and 12% based on the amount produced. In addition to taxes and royalties, the state will also have a share of hydrocarbon production that it can take as cash or in kind. Unlike the royalties, the share will progressively increase over time but is a biddable component and is related to cash flow of the project.
Two other biddable components found in the model contract are the revenue split percentage once all costs are recovered from the project and at what point the percentage change will take effect.
Lebanon appears set to sign contracts in its first offshore licensing round early next year as its neighbour to the south, Israel, just received bids in its first licensing round. Previously Israel had directly awarded exploration licenses.
A small sliver of Lebanon’s EEZ is claimed by Israel, including block 9. Addressing whether the dispute over where to demarcate the maritime boundary between Lebanon and Israel may might lead to conflict, Abi Khalil said “We are determined – and it is one of our objectives [of the first offshore licensing round] – to explore our waters and assert our sovereign right”.
Israel’s licensing round was launched in November 2016 but the deadline to submit bids was delayed to November. Greek company Energean submitted offers on blocks 12, 21, 22 23 and 31 near already discovered fields Karish and Tanin in northern waters of Israel’s EEZ. A consortium of Indian companies submitted an offer on block 32, while the big players steered clear, deterred either by the geopolitics or the prospect of the internal political struggle that gas production would face.