Contested Waters to Open for Bids but Drilling Optional

  • Local

Foreign oil companies who win offshore tenders will not be obliged to drill in the disputed zone along the Lebanese-Israeli maritime border, an industry source said.

“Not all of the blocks near the Israeli territorial waters are disputed, although Lebanon considers all of blocks 8, 9 and 10 as belonging to the Lebanese state. But if the companies prefer to avoid drilling in the alleged disputed zone, they can do all the exploration works away from these areas [but] in the same blocks,” the source told The Daily Star.

Last month Lebanon announced blocks 1, 4, 8, 9 and 10 would open for bids. This came of the heels of Cabinet’s Jan. 4 adoption of two long-awaited decrees crucial to the completion of the country’s first licensing round.

The source stressed that the Lebanese government and the Lebanese Petroleum Administration intend to assuage all concerns of international oil companies and answer all of their queries.

“On Feb. 23, oil companies will attend a workshop in Lebanon to brief them about the efforts to launch the licensing round and answer all their questions. The workshop is part of the road map drawn up by the Energy Ministry. Part of the questions will probably touch on the disputed zone and the government will assuage all their concerns,” the source explained.

The road map presented by the LPA said the oversight body and the Energy Ministry would launch a marketing campaign to lure international oil companies to Lebanon.

The road map also calls on Parliament to approve a tax law for the oil and gas sector.

By Sept. 10, the LPA will receive offers from interested consortiums of companies; on Sept. 22 authorities will publish all offers in the interests of transparency.

On Oct. 16, the LPA will prepare a report assessing the offers and then pass it to the Cabinet for discussion and approval.

The flurry of activity comes after Cabinet adopted two long-awaited decrees. The yearslong delay in passing the decrees effectively killed the previous attempt in 2013 to launch exploration of Lebanon’s potential offshore oil and gas resources.

The first decree divides Lebanon’s exclusive economic zone into 10 blocks and delimits their coordinates. The second presents the tender protocol, which defines the conditions for participating in the bid round and the criteria for bid evaluation, and the model exploration and production agreement to be signed by the state and the winning bidders. The clarification by the source should assuage the concerns of some international oil companies that may not be willing to drill inside the 870 square kilometer disputed zone, which stretches through blocks 8, 9 and 10.

The U.S. government has attempted to mediate the maritime dispute between Lebanon and Israel, but to no avail.

Lebanon has insisted that it will not cede the 870 square kilometers to Israel or share it with anyone. But the government has said it is ready to allow the United Nations to demarcate the disputed zone to determine the legal owner, a suggestion rejected by Israel.

The source noted that apart from Block 8, about half of which is disputed, most of blocks 9 and 10 do not fall within the contested zone.

“If for example, if a company wanted to bid for Block 9 and avoid any issues with the disputed zone, it can do so easily because the area of this block is 1,600 kilometers. The companies can also bid [but only explore] half the area of Block 8, which stretches over 1,400 kilometers. But if companies made good offers for blocks 8 and 9 together, they can drill in a combined area of 2,400 kilometers,” he added.

The source said the Lebanese government will not force the companies to drill in areas they are not comfortable with. “The decrees and laws allow the oil companies to relinquish some of the areas in the blocks if they feel there is no need for drilling in these spots. The company could return these blocks to the Lebanese state if it wishes,” he added.

Another source claimed that some oil companies may have an interest in scaring away their competitors by spreading rumors about these blocks in a bid to win the contracts.

“We can’t tell for sure how many companies will bid for the blocks until ... March 31, the date for accepting the offers. There are other international oil companies which did not take part in the 2013 prequalification rounds that are showing interest in bidding for the blocks,” the source said.

The government and the LPA, according to industry sources, feel confident that Lebanon will receive reasonable offers from international companies despite the delay in passing the two decrees.

Officials admit that Cyprus and Israel have made better progress in inviting oil companies and starting actual drilling, but they insist that Lebanon has a big advantage over other countries in the region.

“At least we have nearly completed all the 3-D seismic survey of most of Lebanon’s exclusive economic zone. This is an added plus for Lebanon. The companies will have a good idea where to start drilling because they possess extensive hydrocarbon data in their hands,” the source said.

Gary Lakes, an energy expert and journalist based in Cyprus, said many companies hadshown interest in bidding for the blocks when the government of Najib Mikati invited the companies to apply in 2013.

“We can assume that some of these companies still are interested in bidding for the blocks in Lebanon although the oil market has changed since 2013. The other advantage Lebanon has [is that] it has nearly completed most of the survey of these blocks,” Lakes told The Daily Star.

But Lakes wondered if the international companies would make offers on blocks near or in the disputed zones.

“The question I have includes blocks 8, 9 and 10 in the tender and right there near the Israeli territorial waters. I am wondering if this will affect the bidding. It will be interesting how this thing will develop,” he said.

Source: The Daily Star

Author: Osama Habib