The Energy and Water Ministry is expecting to receive applications from international oil companies to prequalify for Lebanon’s first offshore gas  licensing round next week before the March 28 submission deadline, Minister Gibran Bassil told The Daily Star Tuesday.
So far, approximately 30 different companies  from 20 countries have purchased seismic data of the potential reserves off the country’s coast for nearly $110 million, netting Lebanon over $34 million in revenues. Bassil said the ministry has already begun to whittle away interested companies that do not meet the criteria.
“We have a decree that is quite clear about the requirements for prequalifications for a rights holder and an operator; each has different legal, financial, technical requirements,” Bassil said. “There is no reason that a company would not prequalify if it meets the criteria.”
The only exception is companies that have done business in Israel. “They are not accepted because of our laws,” Bassil said. “There are certain rules of how we can deal with Israel and we have to abide by our law. I don’t think any company that is working there has the intention to apply. “
Among the many prequalification requirements specified in the hydrocarbon law , only consortiums of three or more international companies in an unincorporated joint venture can bid for a license.
To prequalify as “a right-holder-operator,” a company must demonstrate a minimum of $10 billion in assets, experience operating at least one petroleum development in excess of 500 meters, and demonstrate experience operating in environmentally sensitive areas and successful implementation of Quality Health Safety and Environmental standards during the past three years.
To prequalify to bid for a “right-holder-nonoperator” license, companies must meet similar environmental requirements, have a minimum of $500 million in assets, and an established record of petroleum production.
The ministry is required to decide which consortiums are qualified to submit a bid for an offshore exploration  and production license within three weeks of receiving applications – the law allows for a two-week extension under certain circumstances – and will publish a list of approved parties in the second half of April. The names of those who do not make the cut will not be made public.
In May, Bassil expects to release the terms of reference outlining the tendering process. The deadline to submit a bid should be sometime in October.
Beyond March 28, its not quite clear what the terms of the offshore exploration and production contracts will be, how many licenses Lebanon will auction off, or how the revenues will be distributed. Bassil said it “was premature” to discuss the details of the type of tax schemes companies  will have to adhere to because each bid will detail different terms.
“We have a scheme that is clear,” Bassil said. “On one side there are the royalties which are fixed and determined by state. And you have the taxes on the companies and in between you have the [revenue] sharing [agreement]. The other two parts are fixed and the third one in between is biddable. Based on this, the companies will either win or lose the contract.”
Though the hydrocarbon law permits Lebanon to enter into a production-sharing agreement with licensees, Bassil conceded that the government has no plans to enter into a joint-production sharing agreement just yet.
“It’s possible, but won’t be adopted in the first bidding round,” he said. “This will increase our revenues and help us develop our own resources and know-how about the sector. Our share will be a percentage of the revenues.”
Under the terms of the hydrocarbon law , the proceeds will be deposited in a sovereign wealth fund, but a law needs to be drafted on how it will be managed.
“The taxes will go to the Treasury. The fees will go to the Treasury. But the main revenues from ... the share of the state will go to a sovereign fund,” Bassil said. “The companies don’t need to worry about this. It’s not that we’re lost, we don’t know where the revenues will go. They are going to a sovereign fund, but how the sovereign fund will be managed is a different issue that will be clarified by a new law that we are already thinking about and drafting, but it’s too soon.”
What will concern prospective bidders is the number of blocks – and licenses – Lebanon will open for bidding and the terms of the production-sharing contract(s) it will offer to investors. Though “it’s also too soon to tell” how the exploration blocks will be divided and how many licenses will be issued, Bassil expects to decide by May.
“We are discussing this issue in the government,” he said. “We are still in need of two decrees: One related to the blocks and one related to ... the agreement or the contract with the companies and to the licensing strategy: whether we will open all the blocks for tendering , or part of them, whether we will be awarding one block, two blocks, three.”
“What matters to the companies now is that they have an attractive scheme, attractive blocks, and attractive contracts. [What this looks like] depends on each country; the fiscal system you have, the surface area, the kind of resources and prospectivity you have,” he said. “But I think Lebanon has a very unique model that is being run transparently and professionally which is why our petroleum resources are much more attractive than other neighboring countries.”