Q&A with LPA

Dis­cern­ing the next steps of oil & gas

Executive Magazine - - Contents -

Le­banon is ap­proach­ing a mile­stone nearly

eight years in the mak­ing. In De­cem­ber, cab­i­net awarded two sep­a­rate ex­plo­ration li­censes to a con­sor­tium of three com­pa­nies: France’s To­tal (the op­er­a­tor), Italy’s Eni, and Rus­sia’s No­vatek. Con­tracts were signed at the end of Jan­uary, leav­ing the con­sor­tium and the gov­ern­ment about one year for prepara­tory work ahead of the first ex­ploratory drilling in 2019. Ex­ec­u­tive met with Walid Nasr, pres­i­dent of the board of the Le­banese Pe­tro­leum Ad­min­is­tra­tion (LPA), the sec­tor’s reg­u­la­tor, to find out what comes next.

At the end of Jan­uary, the gov­ern­ment signed ex­plo­ration and pro­duc­tion agree­ment (EPA) con­tracts. What hap­pened be­tween award­ing the li­censes and sign­ing the con­tracts?

Fi­nally, we have reached a point to start op­er­a­tions. Af­ter the ap­proval of the cab­i­net to award the two blocks to the con­sor­tium, the com­pa­nies are re­quested to pro­vide the work com­mit­ment guar­an­tee and par­ent com­pany guar­an­tee. These are two very im­por­tant doc­u­ments re­quired to have [the] full com­mit­ment of the com­pa­nies to ac­tu­ally im­ple­ment their pro­grams through the work com­mit­ment guar­an­tees. And the par­ent com­pany guar­an­tee is very im­por­tant be­cause if any­thing goes wrong, the mother com­pa­nies, who are fully in line with the pre­qual­i­fi­ca­tion re­quire­ments in terms of their fi­nan­cial ca­pac­i­ties, would ac­tu­ally cover any losses or dam­ages or any­thing com­ing up from op­er­a­tions. This is a safe­guard to the gov­ern­ment that we have such guar­an­tees. The guar­an­tees are un­capped.

Can you out­line the as­pects of the work com­mit­ment guar­an­tee?

The con­sor­tium has pro­posed a tech­ni­cal of­fer with an ex­plo­ration pro­gram with min­i­mum work com­mit­ments, and the LPA has put in the ten­der pro­to­col. It is pub­lished and known that there is a min­i­mum com­mit­ment of one well for ev­ery ex­plo­ration pe­riod. We have two ex­plo­ration pe­ri­ods, [the] first one for three years and the sec­ond one for two years. So com­pa­nies were re­quired to drill at least one well in ev­ery pe­riod, and this is what the com­pa­nies have ac­tu­ally sub­mit­ted.

The com­pa­nies need to es­ti­mate a bud­get to be able to im­ple­ment their ex­plo­ration pro­gram, and that bud­get will be cov­ered by a work com­mit­ment guar­an­tee is­sued by their bank. So in case, for any rea­son, the com­pa­nies do not ful­fill their work com­mit­ment as agreed upon in the of­fer, and then in the ex­plo­ration plan that will be sub­mit­ted soon, the gov­ern­ment will have ac­cess to the money and the work com­mit­ment guar­an­tee for the gov­ern­ment ei­ther to im­ple­ment it it­self, or to bring an­other com­pany to im­ple­ment it. This would safe­guard the tar­gets set by the gov­ern­ment to ac­tu­ally drill. So if the con­sor­tium fails to drill, the gov­ern­ment has ac­cess to funds that would en­able the gov­ern­ment to do the work.

Have the guar­an­tees been fi­nal­ized and sub­mit­ted?

The guar­an­tees will be pro­vided very soon. Af­ter that, it’s ad­min­is­tra­tive work, but also a lot of tech­ni­cal work and pre­par­ing lo­gis­tics, be­cause the com­pa­nies will have to pre­pare them­selves to be able to drill in 2019. We have a firm com­mit­ment

from the con­sor­tium to drill one well in Block 4 and one well in Block 9 in 2019, mean­ing a lot of ad­di­tional as­sess­ment, stud­ies on the ge­ol­ogy, on the tech­ni­cal side, on where and how to drill. Then, lo­gis­ti­cally, be­cause based on the reg­u­la­tions the com­pa­nies need to op­er­ate from Le­banon, they will need to open of­fices in Beirut or [else­where] in Le­banon … [and] pre­pare all the lo­gis­tics needed, in­clud­ing a sup­ply base in. So 2018 will be a very busy year for the gov­ern­ment and the con­sor­tium to make sure that all the prepa­ra­tions are done in terms of per­mit­ting ad­min­is­tra­tive work, tech­ni­cal work, lo­gis­tics, and all types of stud­ies to be able to reach our goal of drilling two wells in 2019.

Did the com­pa­nies of­fer to con­duct more seis­mic sur­veys in their bids—would they need more data to nar­row down ex­actly where they will drill?

In the of­fers them­selves, the com­pa­nies didn’t pro­vide ad­di­tional seis­mic sur­veys, and this [is] a very good in­di­ca­tion that the seis­mic sur­veys con­ducted by the ser­vic­ing com­pa­nies [con­tracted in the past] by the Min­istry of En­ergy and the LPA, were sat­is­fac­tory for the com­pa­nies. The com­pa­nies were re­quired to buy li­censes to use the data of the seis­mic [sur­veys], and they have done so. They pre­pared the of­fers based on the in­ter­pre­ta­tion of the seis­mic sur­veys that they have done be­fore, and they were very sat­is­fied with the qual­ity of the sur­vey and their cov­er­age.

All our blocks are cov­ered with 2D and 3D data. Ac­cord­ingly, they have done their as­sess­ment and the prospect of our off­shore [fields]. That is why they ap­plied and pro­vided an of­fer for that. And they even pro­vided de­tails on how they want to drill and where. The com­pa­nies did not com­mit to seis­mic sur­veys be­cause they as­sessed they don’t need them. Now they still have the op­tion to do seis­mic sur­veys if they think they’re needed to have a bet­ter ex­plo­ration pro­gram. When they sub­mit the ex­plo­ration plan in the com­ing 60 days, then they will iden­tify what type of stud­ies they are do­ing and whether they need to do seis­mic sur­veys or not.

In De­cem­ber, EX­EC­U­TIVE in­cor­rectly re­ported that the strate­gic en­vi­ron­men­tal as­sess­ment (SEA) was to be com­pletely re­done, and also in­cor­rectly re­ported how it was to be con­tracted and car­ried out. Can you ex­plain what is hap­pen­ing with the SEA in terms of an up­date and its ex­pected com­ple­tion?

The SEA was com­pleted in 2012, be­fore an SEA de­cree was [com­pleted] by the Min­istry of En­vi­ron­ment, stan­dard­iz­ing how an SEA should be done. The SEA has iden­ti­fied dif­fer­ent sce­nar­ios [for] what may hap­pen dur­ing the de­vel­op­ment of the pe­tro­leum sec­tor in Le­banon, and it had a set of rec­om­men­da­tions [for] what needs to be done next af­ter pre­par­ing the SEA. The LPA had taken the rec­om­men­da­tions of that study and has done a lot of work to ac­tu­ally im­ple­ment these rec­om­men­da­tions, for ex­am­ple, pre­par­ing a na­tional oil spill con­tin­gency plan. Now, in 2017 and 2018, we thought it was time to up­date the SEA with any­thing new since 2012—most im­por­tantly, to in­clude any ad­di­tional en­vi­ron­men­tal data avail­able in our anal­y­sis. This will be done soon. It will also in­clude en­vi­ron­men­tal man­age­ment plans for the sec­tor.

A draft law for a sov­er­eign wealth fund (SWF) has been sub­mit­ted to a par­lia­ment sub­com­mit­tee for de­bate. What role does the LPA have in con­tribut­ing to this draft law?

The con­cept of the SWF is laid down in the Pe­tro­leum Re­sources Law 132, which says that all rev­enues com­ing from pe­tro­leum ac­tiv­i­ties need to be put in the SWF. Now, the LPA is not an in­sti­tu­tion man­dated to es­tab­lish the SWF, nor to man­age [it]. Our role is to ba­si­cally give guid­ance to other in­sti­tu­tions in the gov­ern­ment re­lated to the tech­ni­cal part of the in­put needed for the pe­tro­leum sec­tor. So what we’ll be do­ing is that we’ve been co­or­di­nat­ing with the Min­istry of Fi­nance and now, as you men­tioned, this will be dis­cussed in the Par­lia­ment and spe­cial­ized com­mit­tees. So the LPA will take part in those dis­cus­sions in those par­lia­men­tary com­mit­tees to pro­vide any tech­ni­cal ad­vice or in­put needed for the par­lia­men­tar­i­ans to dis­cuss the SWF.

Are there spe­cific rev­enues that have al­ready in­curred?

The rev­enues in­curred so far are the rev­enues from sales of the li­cens­ing of the seis­mic data. And this is now put in a sep­a­rate ac­count in the cen­tral bank, [and] again this is a de­ci­sion of the Par­lia­ment of how to use this fund, and whether this can be seed money for the [SFW].

“Now, in 2017 and 2018, we thought it was time to up­date the SEA with any­thing new since 2012—most im­por­tantly, to in­clude any ad­di­tional en­vi­ron­men­tal data avail­able in our anal­y­sis.”

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