Tick Tock

Let the bid­ding com­mence

Executive Magazine - - Contents -

16

Some view it as a race against Is­rael Our neigh­bor—which is defini­tively not steal­ing Le­banon’s gas—closes its first off­shore li­cens­ing round on Novem­ber 15. Is­rael had pre­vi­ously awarded ex­plo­ration li­censes di­rectly.Le­banon just post­poned the close of its own first round— yet again—from Septem­ber 15 to Oc­to­ber 12. The new dead­line, how­ever, ac­tu­ally seems to have been cho­sen this time based not on the usual in­sis­tence of lo­cal of­fi­cials, but on com­ments from Dhar­men­dra Prad­han, In­dia’s oil min­is­ter.

THE CU­RI­OUS CASE OF ONGC

In July, af­ter a meet­ing with Le­banon’s Min­is­ter of En­ergy and Wa­ter Ce­sar Abi Khalil, Prad­han tweeted: “The meet­ing was im­por­tant in the con­text of @ongc­videshltd par­tic­i­pa­tion in the up­com­ing bid round for off­shore gas fields in Le­banon.” ONGC Videsh Ltd is In­dia’s na­tional oil com­pany, which had pre­qual­i­fied as an op­er­a­tor in Le­banon’s first off­shore li­cens­ing round in April. In Septem­ber, how­ever, Prad­han told Reuters, “We will def­i­nitely bid for Is­rael’s oil and gas blocks.” It is un­clear, how­ever, how much cap­i­tal the com­pany has to de­ploy in ei­ther ju­ris­dic­tion, let alone both. The Mediter­ranean Sea gets deep fast off the shores of both Le­banon and Is­rael. Drilling in wa­ter more than 1,000 me­ters deep is ex­pen­sive, and the In­dian com­pany said in an Au­gust in­ter­view that its planned $150 mil­lion ex­plo­ration bud­get will fo­cus on Colom­bia, Kaza­khstan, and Bangladesh.

As­sum­ing ONGC is se­ri­ously con­tem­plat­ing bids in the Eastern Mediter­ranean, if Le­banon closes its round be­fore Is­rael, it could cap­ture ONGC’s bid at a time when of­fi­cials ad­mit the pos­si­bil­ity that not many of­fers will come rolling in. If Le­banon closes af­ter Is­rael, how­ever, ONGC could bid to the south, com­pli­cat­ing a later bid in Le­banon from a po­lit­i­cal—and pos­si­bly even a le­gal—per­spec­tive (Le­banon still tech­ni­cally has a boy­cott of­fice at the Min­istry of Econ­omy). The Le­banese Petroleum Ad­min­is­tra­tion (LPA) would not com­ment specif­i­cally on ONGC (or any other bid­der), but LPA pres­i­dent Wis­sam Ch­bat told Ex­ec­u­tive in an in­ter­view that “we might end up in this sit­u­a­tion” (of hav­ing only one bid), but “we haven’t been ex­pect­ing [only] one bid.”

While 51 com­pa­nies are pre­qual­i­fied to bid in Le­banon, all but five went through the prequalification process back in 2013. It is dif­fi­cult, there­fore, to pre­dict how many will ac­tu­ally bid, es­pe­cially given that Le­banese law re­quires com­pa­nies to form con­sor­tia with a min­i­mum of three mem­bers in or­der to sub­mit bids; each con­sor­tium must in­clude an op­er­a­tor, and there are only 13 pre­qual­i­fied op­er­a­tors. This means that even if many non-op­er­a­tors want to bid, they can­not do so with­out woo­ing one of the 13 op­er­a­tors. On the one hand, ex­ten­sive seis­mic sur­veys that look promis­ing, cou­pled with big nat­ual gas dis­cov­er­ies nearby, sug­gest that Le­banon should be at­trac­tive as a green­field in­vest­ment. On the other hand, the in­dus­try cur­rently has a sup­pressed ap­petite for the ex­pen­sive deep­wa­ter drilling re­quired to prove whether or not Le­banon has oil and/or gas re­serves. Ex­ec­u­tive has re­peat­edly reached out to the pre­qual­i­fied com­pa­nies for com­ment on their plans in the past and has been re­peat­edly re­minded that com­pa­nies do not com­ment on such mat­ters. In a state­ment re­leased shortly af­ter the most re­cent post­pone­ment the LPA said that part of the rea­son for the de­lay was to al­low com­pa­nies to form con­sor­tia—sug­gest­ing bids are in­deed be­ing pre­pared.

WHAT TO EX­PECT ON THE BIG DAY

Once bids are sub­mit­ted, Ch­bat says the LPA will have three days to report back to the cabi­net about which com­pa­nies bid on which blocks. The LPA will then eval­u­ate the of­fers. For the com­mer­cial of­fers, this means run­ning nine dif­fer­ent sim­u­la­tions (which in­clude three vol­ume as­sump­tions and three price as­sump­tions) and tak­ing an av­er­age of the re­sults. Com­pa­nies will also be scored on their tech­ni­cal of­fers, and based on both out­comes, Ch­bat says, the LPA will choose pro­vi­sional win­ners for each block. The list of win­ners will be pro­vi­sional be­cause the gov­ern­ment/ LPA can ne­go­ti­ate with com­pa­nies on their tech­ni­cal of­fers, which in­clude pro­pos­als for ad­di­tional sur­veys of Le­banese wa­ters, as well as the num­ber, lo­ca­tion, and depth of the wells they plan to drill. The of­fers are ne­go­tiable, Ch­bat ex­plains, be­cause re­quest­ing slightly more sur­vey­ing, or a slightly deeper well, re­sults in more valu­able in­for­ma­tion for the state.

The LPA has slated one month for eval­u­at­ing of­fers and choos­ing pro­vi­sional win­ners be­fore send­ing that rec­om­men­da­tion to the cabi­net, which will ul­ti­mately ap­prove which con­tracts, if any, to sign. While the LPA

an­nounced in April that con­tracts should be signed by Novem­ber, legally the gov­ern­ment has a full six months af­ter bids are re­ceived to sign an award. Ch­bat says the bid­ders will be an­nounced when the LPA sub­mits its report on the sub­ject to cabi­net. Un­til then, it is a wait­ing game.

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