De­cod­ing the oil deal

Executive Magazine - - Front Page - By Matt Nash

More ques­tions than an­swers from Bas­sil-Berri meet­ing

Par­lia­ment Speaker Nabih Berri is hav­ing trou­ble mak­ing up his mind. Or so it seems. On July 1, Berri and For­eign Min­is­ter Ge­bran Bas­sil struck an un­ex­pected deal. The agree­ment was touted as a bull­dozer clear­ing the fi­nal bar­rier that, for over three years, has blocked the con­clu­sion of Le­banon’s first off­shore oil and gas li­cens­ing round. The par­ties, how­ever, have cho­sen a very odd strat­egy for build­ing na­tional con­sen­sus around their deal. By all ac­counts, they haven’t shared the de­tails widely, and the terms of the deal com­ing from the speaker’s side vary de­pend­ing on what you read. At the time of writ­ing, this looks more like a me­dia stunt than a news de­vel­op­ment.

COM­ING TO TERMS

The search for oil and gas un­der Le­banese ter­ri­tory be­gan be­fore the ter­ri­tory was tech­ni­cally Le­banese. Some five years prior to Le­banon’s 1943 dec­la­ra­tion of in­de­pen­dence, the Iraq Petroleum Com­pany drilled an on­shore well. The com­pany did not make any dis­cov­er­ies, but the search con­tin­ued (both via drilling and sur­vey­ing) un­til the early 1970s. In 1993, the govern­ment again be­gan look­ing for hy­dro­car­bons, com­mis­sion­ing a two-di­men­sional (2-D) seis­mic sur­vey off the coast of Tripoli, in the north. Since then, oil stayed on politi­cians’ brains, but move­ment has typ­i­cally been slow, with one ex­cep­tion: Na­jib Miqati’s 2011-2013 cab­i­net. With a newly minted off­shore hy­dro­car­bon law on the books, thenEn­ergy Min­is­ter Bas­sil clearly made the cre­ation of a Le­banese oil and gas sec­tor a top pri­or­ity, and the cab­i­net largely backed him.

In De­cem­ber 2012, af­ter se­cur­ing the cab­i­net’s ap­proval, Bas­sil an­nounced the ap­point­ment of six board mem­bers for the Le­banese Petroleum Ad­min­is­tra­tion (LPA), a reg­u­la­tor for the sec­tor, which the 2010 off­shore law called for. [By way of con­trast, an elec­tric­ity sec­tor reg­u­la­tor called for in a 2002 law re­mains ink on pa­per to this day.] In Fe­bru­ary 2013 – only 80 days af­ter its board was ap­pointed – the LPA opened a pre-qual­i­fi­ca­tion round to se­lect which in­ter­na­tional oil and gas com­pa­nies would be al­lowed to bid in the first li­cens­ing round. The pre-qual­i­fi­ca­tion process went as planned, and in April 2013, 46 com­pa­nies were given the green light to par­tic­i­pate in the round, sched­uled to open the fol­low­ing month. There was only one prob­lem. Miqati had re­signed at the end of March be­fore much-needed work on oil and gas was fin­ished. Most press­ing were two de­crees needed for the li­cens­ing round (one de­lin­eates Le­banon’s off­shore blocks and the other in­cludes a model con­tract to be signed be­tween the state and com­pa­nies keen to drill as well as de­tails on how the bid­ding will hap­pen and how of­fers will be eval­u­ated). Shortly af­ter Prime Min­is­ter Tam­mam Salam formed a govern­ment in Fe­bru­ary 2014, he tasked a min­is­te­rial com­mit­tee with study­ing the de­crees. They have yet to be ap­proved.

Since 2013, it has been quite clear that one of the big­gest bar­ri­ers to get­ting the de­crees passed lies in a dis­agree­ment in­volv­ing Berri. The speaker wanted to open all ten blocks for bid­ding. The LPA, mean­while, rec­om­mended open­ing only five, a po­si­tion Bas­sil sup­ported. In ei­ther sce­nario, fewer con­tracts would be signed than blocks put on of­fer. An­nounc­ing the Berri-Bas­sil deal, nei­ther Bas­sil nor Berri’s con­fi­dant, Fi­nance Min­is­ter Ali Has­san Khalil, men­tioned any­thing about which blocks to open for bids. Speak­ing to Ex­ec­u­tive two weeks af­ter the deal was done, Ce­sar Abi Khalil, a former Bas­sil ad­vi­sor (cur­rently coun­sel­ing En­ergy Min­is­ter Arthur Nazar­ian), at first reads an amended ver­sion of the state­ment is­sued af­ter the Berri-Bas­sil meet­ing.

“There has been an agree­ment on [an off­shore oil and gas] li­cens­ing strat­egy,” Abi Khalil says. “The li­cens­ing strat­egy should en­sure Le­banon’s rights to re­sources in our subsea, first [vis-à-vis] Israel, sec­ond Cyprus and Syria. It should en­sure that the Le­banese govern­ment will max­i­mize its profit from petroleum ac­tiv­i­ties, and it will en­sure the right en­vi­ron­ment for the li­cens­ing round to suc­ceed.” Nei­ther for­eign nor fi­nance min­is­ters men­tioned “li­cens­ing strat­egy” in their July 1 an­nounce­ment. Even with that added de­tail, how­ever, the deal still sounds vague. (Which party would agree to ced­ing Le­banon’s rights, min­i­miz­ing the state’s take from po­ten­tial re­sources and hav­ing an un­suc­cess­ful li­cens­ing round?) In­deed, Ex­ec­u­tive’s first ques­tion to Abi Khalil was: “So what does that all mean?”

“I think this is clear. This is the ex­tent of the state­ment,” Abi Khalil replies, be­fore elab­o­rat­ing diplo­mat­i­cally that Berri agreed to aban­don an idea he had been pro­mot­ing for about three years. The ac­tual deal, Abi Khalil says, calls for open­ing fewer than ten blocks to bid­ding in the first li­cens­ing round.

READ­ING THE TEA LEAVES

Ex­ec­u­tive was un­able to reach Speaker Berri or any­one who could an­swer ques­tions on his be­half. On July 9, TheDai­lyS­tar re­ported Berri had con­vinced Bas­sil to ac­cept open­ing all ten blocks, the op­po­site of what Abi Khalil says the deal en­tails. On July 22, econ­o­mist Mar­wan Iskan­dar wrote in AnNa­har that the Speaker told him per­son­ally that the deal meant go­ing with the LPA’s strat­egy of open­ing fewer than ten blocks,

seem­ingly con­firm­ing what Abi Khalil says. Yet that same day, Al Ara­biya English ran a piece again claim­ing the Speaker’s vi­sion of of­fer­ing all ten blocks had won the day.

Fu­ture Move­ment MP Mo­ham­mad Kab­bani, who heads the par­lia­men­tary com­mit­tee which deals with oil and gas, ex­plains that his party has not been ex­plic­itly briefed on the deal since it was struck, but says his party is on board. “We have agreed to sub­mit­ting ten blocks for li­cens­ing and sign­ing only a few con­tracts. If this is the real agree­ment,” he says. Ac­cord­ing to Abi Khalil, that is not the deal, which seems to throw into ques­tion whether or not Fu­ture will ac­cept it. Abi Khalil has not re­sponded to fol­low up ques­tions on why con­fu­sion and mis­in­for­ma­tion seems to be how the par­ties are com­mu­ni­cat­ing their deal.

WHY NOW?

Putting aside the de­tails of the deal for a sec­ond, Kab­bani and Le­banese Forces MP Joseph Maalouf of­fered some in­sight as to why the deal came when it did. For three years now, Berri has been claim­ing that Israel is steal­ing Le­banon’s gas. He has never of­fered proof and the con­cept al­ways seemed sus­pect on tech­ni­cal grounds. Le­banon’s neigh­bor has dis­cov­ered gas in its off­shore acreage. None of those dis­cov­er­ies stretch into Le­banese wa­ters. There­fore, if Israel were truly steal­ing, the pri­vate com­pany do­ing the ac­tual drilling would have to em­ploy ex­pen­sive tech­nol­ogy to drill past the Is­raeli fields on a blind, subsea search for Le­banese fields to the north. Not only is this costly and risky (i.e., no guar­an­tee a Le­banese field would be found), if the pri­vate com­pany were caught do­ing so, its rep­u­ta­tion would be in the toi­let at the very least. The only other way for Israel to steal Le­banon’s gas would be if the two coun­tries shared a re­serve and Israel be­gan ex­ploit­ing it first with­out agree­ing how to split prof­its with Le­banon. Shared re­serves are not un­com­mon (Iran and Qatar share the world’s largest gas field). None have yet been dis­cov­ered be­tween Israel and Le­banon. How­ever, new data sug­gest the two coun­tries may have a shared reser­voir. This new data, cou­pled with fears that an Is­raelTurkey rec­on­cil­i­a­tion an­nounced in late June means Is­raeli gas may soon reach a hun­gry Euro­pean mar­ket via a pipe­line to Turkey, prompted the oil deal, Maalouf and Kab­bani say.

Walid Nasr, head of strate­gic plan­ning at the LPA, re­fuses to com­ment on the po­lit­i­cal deal, but sheds light on the new data (see in­ter­view page 18). Echo­ing Kab­bani and Maalouf, he ex­plains that in 2002, an Amer­i­can com­pany called TGS con­ducted seis­mic sur­veys of Le­banon’s off­shore. The com­pany re­fused to give the Le­banese govern­ment the data back then, Nasr says, be­cause the two did not have a writ­ten con­tract, only an oral agree­ment be­tween the com­pany and the then-min­is­ter of en­ergy. Bas­sil sued in 2011, and TGS handed the data over re­cently, Nasr ex­plains. TGS re­fuses to com­ment in an email ex­change with Ex­ec­u­tive, but a pa­per on the com­pany’s web­site con­firms it shot over 2,000 kilo­me­ters of 2-D seis­mic in Le­banon’s off­shore in 2002. In­ter­est­ingly, the map pub­lished along with the pa­per seems to show that Le­banon’s seis­mic sur­veys stretch south into Israel’s off­shore. Nasr says the in­ter­preted data sug­gests Le­banon and Israel may have a shared hy­dro­car­bon reser­voir (2-D seis­mic can­not dis­tin­guish be­tween oil and gas). Seis­mic sur­veys, how­ever, are not per­fect tools. They give in­di­ca­tions of where oil and/or gas might be. Only drilling con­firms what lies be­low, mean­ing what to­day looks like shared re­sources could prove to be noth­ing.

UN­FIN­ISHED BUSI­NESS

Im­me­di­ately af­ter the deal, press re­ports claim­ing the de­crees would be passed im­mi­nently were rife. Yet a num­ber of de­ci­sions still need to be made. While Abi Khalil in­sists Berri piv­oted from want­ing to open all ten blocks for bid­ding, he ad­mits the ex­act num­ber was not de­cided on. In­deed, he re­peat­edly says “we have no re­li­gion” in the mat­ter when asked if the LPA’s strat­egy of of­fer­ing five will be the fi­nal strat­egy. Ditto the num­ber of con­tracts to be signed. Fewer than the num­ber of blocks of­fered, but how many? “We have no re­li­gion in this mat­ter,” Abi Khalil re­peats. Fi­nally, given that the

Since 2013, it has been quite clear that one of the big­gest bar­ri­ers to get­ting the de­crees passed lies in a dis­agree­ment in­volv­ing Berri

pre-qual­i­fi­ca­tion round hap­pened three years ago, might an­other be nec­es­sary if some pre-qual­i­fied com­pa­nies have lost in­ter­est in bid­ding or if new com­pa­nies are ea­ger to in­vest? Khalil says a sec­ond pre-qual­i­fi­ca­tion round could be a good idea, but in­sists his side has “no re­li­gion in the mat­ter.” Where and how these re­main­ing points open to ne­go­ti­a­tion will be dis­cussed is un­clear. Prime Min­is­ter Tam­mam Salam has not called for a meet­ing of the oil and gas min­is­te­rial com­mit­tee to dis­cuss re­cent de­vel­op­ments. Nor has he put the oil and gas de­crees on the cab­i­net’s agenda. In fact, he’s done lit­tle more than of­fer veiled crit­i­cism of how the deal was an­nounced. Dur­ing the July 1 press con­fer­ence, when a re­porter asked Bas­sil for de­tails, he said that was not im­por­tant at this stage as the two sides would now be­gin brief­ing oth­ers to build con­sen­sus. If such a road­show is hap­pen­ing, it is one of the best kept se­crets in Le­banon.

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