Oil and Gas Prospects in Lebanon
1st Licensing Round: Bidding &
Contractual Terms
Arab Economic Forum
9-10 May 2013
Wissam Zahabi – Head of Economic & Finance Dept.
Fiscal Regimes

Concessionary
– Private Ownership of
resources
– Royalty / Tax

Contractual
– State retains ownership of
resources
– Profit petroleum
Arab Economic Forum 9-10 May 2013
Activities & Cash Flow (oil profile)
Income
Government
Time
Costs
Pre-license
Exploration
Development
Production
Production
Enhanced.
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
Legal Basis
 Offshore Petroleum Resources Law (OPR Law)
 Petroleum Activities Regulation (PAR)
 EPA is a commercial contract and a roadmap of OPR Law and PAR
Structure
 Exploration and Production Agreement with Production Sharing
 Industry Standard Structure
 Robust economic incentives to explore, develop and produce
Phases
 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
Economics
 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
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
Discovery and
Appraisal
 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
 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
Development and
Production
 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
Gas Infrastructure
and Marketing
 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
Arab Economic Forum 9-10 May 2013
Key Economic Terms
Royalties
• Crude Oil: Sliding
Scale ranging
from 5% to 12%
based on
monthly average
daily production
rate (see next
slide)
• Natural Gas: 4%
flat royalty
• May be taken in
cash or in kind
(State election
made annually)
Cost Petroleum
• Costs fully
recoverable up
to fixed
percentage of
Disposable
petroleum
• Percentage
determined
through bidding
• No ring-fencing
within area – if
multiple
discoveries, cost
recovery based
on total
production
Profit Petroleum
Profit tax
Other Issues
• 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)
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

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)
BIDS TO BE
SUBMITTED BY
NOVEMBER 4,
2013
Arab Economic Forum 9-10 May 2013
Bidding Parameters
Bid
Commercial Proposal
• Cost Petroleum recovery ceiling
• Profit Petroleum sharing (based
on the R-factor formula set forth
in the Exploration and Production
Agreement)
Technical Proposal
• 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
Tender protocol specifies weighting
for the items described above
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
Arab Economic Forum 9-10 May 2013
Selection Process & Award
Short-listing
consortia
 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)
Final
negotiation
round
 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
Signature of
EPA
 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
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
Thank You