Lebanon auction set to stoke dispute

08 January 2019, Week 01, Issue 706

Beirut appeared poised to reignite a maritime territorial dispute with Israel in late December – by naming two blocks containing contested acreage as among four provisionally envisaged being included in the government’s second licensing round, due later this year.

Israel’s own upstream auction – launched in the fourth quarter – focuses on uncontroversial areas close to the coast, and Lebanese objections to earlier licensing activity have been muted.

The caretaker government in Beirut – in power since elections in May – approved a proposal that month that the Lebanese Petroleum Administration (LPA), an agency of the Ministry of Electricity & Water, be permitted to proceed with preparations for a second offshore licensing round.

The maiden auction of five blocks concluded in late 2017 with the award of two of the licenses – numbered 4 and 9 – to the same consortium and sole bidder, led by France’s Total with Italy’s ENI and Russia’s Novatek.

The country’s Exclusive Economic Zone (EEZ) was delineated into 10 parcels of acreage under legislation passed in early 2017 belatedly paving the way for the debut offering – delayed by more than three years through the lack of a permanent government.

In late December, the LPA announced the four blocks to be recommended for inclusion in the second bid round – three of which are those unassigned in the previous auction, with only block 5 to be offered for the first time.

Officials have spoken of intent to amend the model exploration and production agreement (EPA) to take account of concerns expressed by some of the 48 prequalifiers which ultimately declined to bid on the previous occasion.

Blocks 8 and 10 lie on either side of block 9 in the south of the EEZ along the maritime border with Israel and, in common with that licence, overlap with an 890-square-km of territory disputed with Tel Aviv. The two governments engaged in heated rhetorical hostility in the wake of the award but consortium leader Total has said that work at the block would be concentrated away from the contested area.

Drilling is due to start at the uncontroversial block 4 – near the central coast – this year and reach block 9 in 2020. The EPA obliges the operator to drill at least one well in each block during the first three years of the five-year exploration period.

All three of the controversial southern licence areas – which officials claimed during the bidding process were those attracting the most interest – were deemed prospective for gas while blocks 1 and 4 were said to be more likely to yield oil.

Block 1 lies in the north-east corner of the EEZ along the maritime border with Cyprus while the other newly-tendered block 5 is contiguous to the north of block 8.

The recommendations require approval from the Council of Ministers – and those approved for the first round differed from those initially envisaged by the LPA, which included blocks 5 and 6 and omitted 8 and 10.

Beirut had planned to launch the second auction by the end of last year but the country remains without a government, with renewed negotiations in late December led by Prime Minister-designate Saad al-Hariri failing to bridge divisions over the allocation of portfolios among religious groups.

According to the LPA’s provisional schedule, prospective participants are to be allowed four months to submit prequalification applications and a further six months from publication of the Tender Protocol to form consortia and prepare bids, with selections and signature of the deals taking place during the following two months.

Statements thus far from the agency indicate that – as was the case in the first round – consortia will be required to comprise at least three prequalifiers, one of which should be qualified as an operator.

In common with its neighbour, Israel received a disappointing response to a maiden offshore bid round conducted simultaneously in 2017 – awarding only six of the 24 blocks offered, each covering around 400 km – and Tel Aviv launched a second auction in November, this time incentivising bids for contiguous blocks.

The country’s licensing has for the most part proved uncontroversial – although the furore over the award of Lebanon’s block 9 prompted politicians in Beirut to reprise fears about the accelerating development activities at Israel’s Karish field, close to the maritime border.

The 19 blocks being offered in the second round are concentrated in the south of the EEZ. Bids and awards are due in June and July respectively.

Edited by

Ian Simm

Editor

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