Oil and Gas Prospects in Lebanon: Licensing Round Insights
Gain valuable insights into the oil and gas prospects in Lebanon, including details on fiscal regimes, contractual terms, activities, cash flow, and production sharing contracts discussed at the Arab Economic Forum in 2013.
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Presentation Transcript
Oil and Gas Prospects in Lebanon 1stLicensing Round: Bidding & Contractual Terms Arab Economic Forum 9-10 May 2013 Wissam Zahabi Head of Economic & Finance Dept.
Fiscal Regimes Concessionary Contractual Private Ownership of resources Royalty / Tax State retains ownership of resources Profit petroleum Arab Economic Forum 9-10 May 2013
Activities & Cash Flow (oil profile) Income Government Time Costs Production Enhanced. Pre-license Exploration Development Production Abandonment Arab Economic Forum 9-10 May 2013
Production Sharing Contract ROYALTY COST COST RECOVERY OIL COMPANY PROFIT TOTAL OIL PRODUCED CONTRACTOR SHARE OF PROFIT OIL Corp. tax GVT. TAKE PROFIT OIL GOVERNMENT SHARE OF PROFIT OIL Arab Economic Forum 9-10 May 2013
Exploration & Production Agreement Offshore Petroleum Resources Law (OPR Law) Petroleum Activities Regulation (PAR) EPA is a commercial contract and a roadmap of OPR Law and PAR Legal Basis Exploration and Production Agreement with Production Sharing Industry Standard Structure Robust economic incentives to explore, develop and produce Structure Exploration: Five years, divided into periods of 3 years and two years, with possible extension Appraisal: up to two years, plus marketing period for natural gas discovery (if approved) Production: 25 years plus possible 5 year extension with secondary investment Phases Royalties: sliding scale for crude oil, flat 4% for natural gas Cost petroleum up to percentage of petroleum produced, based on bid Profit petroleum split based on bid -Adjustment based on R-Factor Economics Protects Key Lebanese Interests Lebanese employment: At least 80% Lebanese nationals Procurement: Lebanese contracting requirement where competitive Environment and Decommissioning: International standard requirements and funding Arab Economic Forum 9-10 May 2013
The Partners Right Holder Exploration and Production Agreement (EPA) Operator / Right Holder Right Holder The State, represented by the Minister At least three Right Holders at all times (OPR Law Requirement) No State Participation Interest in First Round EPAs State role is to receive share of production, and to exercise approval rights Some decisions reserved by OPR Law to Council of Ministers. Others made by Minister, acting on recommendation of Petroleum Administration. Arab Economic Forum 9-10 May 2013
Phases Exploration Phase of five years Divided into two Exploration Periods, three years and two years Exploration Phase can be extended for justified operational reasons or Event of Force Majeure, subject to Council of Ministers approval Exploration Discovery must be promptly reported to PA. Right Holders indicate if Natural Gas or Crude Oil, and whether Potentially Commercial If Potentially Commercial, Right Holders must submit Appraisal Plan to retain rights to Discovery Right Holders must decide on Declaration of Commerciality after Appraisal period Discovery and Appraisal After Declaration of Commerciality, Right Holders must submit Development and Production Plan Plan is subject to Council of Ministers Approval If approved, Right Holders must achieve first Commercial Production by agreed deadline Development and Production Natural Gas Discovery requires Gas Infrastructure and Marketing Plan Right Holders may apply to Minister for extra time to secure offtake and infrastructure Associated Natural Gas in Crude Oil Discovery must be disposed of or delivered free of charge to State Gas Infrastructure and Marketing Arab Economic Forum 9-10 May 2013
Key Economic Terms Royalties Cost Petroleum Profit Petroleum Profit tax Other Issues Crude Oil: Sliding Scale ranging from 5% to 12% based on monthly average daily production rate (see next slide) Costs fully recoverable up to fixed percentage of Disposable petroleum Profit petroleum split based on bidding (minimum and maximum State profit petroleum share) Minimum bid State share until costs recovered After costs recovered, split adjusted based on R-Factor (cumulative cash inflow /cumulative capex, see next slide), using sliding scale up to maximum bid State split The OPR Law requires companies to pay all Lebanese taxes (see Annex) State priority right to take royalties and production share in natural gas This is reflected in the EPA State priority right to purchase natural gas (international prices) Percentage determined through bidding Natural Gas: 4% flat royalty No ring-fencing within area if multiple discoveries, cost recovery based on total production May be taken in cash or in kind (State election made annually) Arab Economic Forum 9-10 May 2013
Emphasis on Local Content Procurement General rule: competitive tenders Lebanese contractors are given preference: Services price less than 110% of foreign competitor Goods price less than 105% of foreign competitor Minister approval: affiliate contracts/contracts above US$5 M per year or US$10 M overall Employment and Training Recruitment and training program for Lebanese nationals mandatory At least 80% of employees must be Lebanese nationals Right holders required to fund training program for Lebanese personnel Plans must include program for hiring Lebanese nationals as management and professional staff Arab Economic Forum 9-10 May 2013
Bid Content Consortia must include one operator (minimum 35% stake) and at least two right holders (minimum 10% stake each), all unaffiliated No company may join more than one consortium per block No right holder (operator or non-operator) may be part of more than three applicants Technical Proposal BIDS TO BE SUBMITTED BY NOVEMBER 4, 2013 Commercial Proposal Proof of payment of $50,000 retrieval fee and purchase of 3D seismic data $5,000,000 bid bond per consortium, per block Bid must remain open for at least 180 days, extendable by an additional 90 days by the Minister Legal documentation (as detailed in the tender protocol) Arab Economic Forum 9-10 May 2013
Bidding Parameters Bid Commercial Proposal Technical Proposal Cost Petroleum recovery ceiling Profit Petroleum sharing (based on the R-factor formula set forth in the Exploration and Production Agreement) Proposed activities per exploration period: Proposed 3D seismic survey Proposed other geological and geophysical activities Exploration wells (number, depths) Technical proposal must provide for at least one exploration well per exploration period (except for blocks 3 and 8, where one exploration well is required for the second period only) Grading System Each of the items shall be evaluated independently, with the highest mark for each item attributed to the best proposal by a consortium for such item Overall weight split: 70% for the Commercial Proposal and 30% for the Technical Proposal Tender protocol specifies weighting for the items described above Arab Economic Forum 9-10 May 2013
Selection Process & Award Evaluation of Commercial and Technical Proposals by Petroleum Administration Petroleum Administration to make recommendation to Minister regarding the selection of candidates to be short-listed for next stage Minister announcement of shortlist of up to five bidders per block (expected December 2013) Short-listing consortia Items subject to negotiation in the final stage to be specified in the Final Tender Protocol Current expectation is that the consortia will be invited to improve their Commercial and Technical Proposals, but that no other terms will be negotiated Upon completion of negotiation process, Minister to submit a report to Council of Ministers on results of negotiation process Final negotiation round Signing of EPA, parent guarantees and presentation of work commitment guarantees for first exploration period to occur simultaneously (expected February or March 2014) If final negotiations round yields no improvement on Commercial and Technical Proposals, any consortium may be required to enter into an EPA on the basis of its bid Effectiveness of EPA upon approval of Council of Ministers Signature of EPA Arab Economic Forum 9-10 May 2013
Lebanon Advantages in Attracting Exploration Investment High oil prices have led to increased availability of risk capital. Declining resources and investment opportunities increases the oil companies appetite for frontier areas, such as Lebanon Large areas are available for licensing offshore Modern data available to possible investors Modern Legal and Contractual framework Oil and gas discoveries in neighbouring and similar basins Close to large markets fiscal stability Arab Economic Forum 9-10 May 2013
