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Exploration and production
Who holds the rights to oil and gas reserves in your jurisdiction?
The Lebanese Constitution and the Offshore Petroleum Resources Law vest full ownership of petroleum resources and their management in the state. Petroleum activities cannot be performed without official authorisation, which will give oil and gas companies the exclusive right to explore for, develop and produce oil and gas in Lebanon’s exclusive economic zone.
Is there a distinction between surface and subsurface rights?
What rules and procedures govern the grant of rights for exploration and production purposes (eg, through licences, leases, concessions, service contracts, production sharing agreements)?
Petroleum rights are awarded either as reconnaissance rights or as exploration and production rights.
For reconnaissance rights, a licence is granted by the Council of Ministers for up to three years on a non-exclusive basis without any preference or privilege with regard to obtaining any other petroleum right.
Exploration and production rights are awarded through an exploration and production agreement (EPA) approved by the Council of Ministers and signed by the winning bidders (ie, oil and gas companies) and the minister of energy and water.
An EPA (signed with a pre-qualified joint stock company) allows rights holders to carry out petroleum activities in the contract area. It defines the rights and obligations of the rights holders between themselves and towards the state, and establishes:
- the EPA's duration and each of its phases;
- the state and rights holders' participation interests;
- the minimum work obligations and expenditure commitments for the exploration phase;
- any environmental matters;
- any accounting rules and provisions applicable to petroleum activities under the EPA;
- methods for determining profits;
- the standard minimum guarantees; and
- other miscellaneous provisions.
Under an EPA, a consortium of at least three rights holders (with one operator and two non-operators) are granted exclusive rights to explore, appraise, develop and produce oil and gas in a defined offshore block, on a production sharing basis, and non-exclusive rights for construction and the processing, transportation and storage of petroleum.
The EPA includes two phases. The exploration phase is five years, which is divided into two periods of three years and two years. This can be extended to up to 10 years, further to approval from the Council of Ministers.
This is followed by a production phase of 25 years, which can be extended to up to 30 years upon the council’s approval.
To date, the Council of Ministers has yet to approve the final version of the model EPA.
What criteria are considered in awarding exploration and production rights (eg, are there any restrictions on the participation of foreign investors/companies)?
The EPA is the contractual instrument for awarding exclusive petroleum rights in Lebanon. Winners sign it with the minister of energy and water as part of a consortium of three rights holders.
Each rights holder must be a joint stock company and is subject to financial and technical requirements.
Each consortium must comprise at least one operator, with minimum participating interests of 35%, and at least two non-operators, with minimum participating interests of 10% each. Under the Offshore Petroleum Resources Law and the Petroleum Activities Regulations, an unincorporated joint venture must be established between the three rights holders, which are jointly and severally liable.
Rights holders can be national or international oil and gas companies.
Oil and gas companies can pre-qualify as operators or non-operators. Requirements for these roles are different and are significantly more stringent for operators. These pre-qualification criteria address the following four main categories:
- Legal – an oil and gas company that is not Lebanese and resident in Lebanon must establish and maintain a legal presence in Lebanon.
- Financial – operators must have total assets of $10 billion, while non-operators need total assets of $500 million.
- Technical – operators must operate at least one petroleum development in water deeper than 500 metres, while non-operators must operate an established petroleum development.
- Quality, health, safety and environment – both operators and non-operators must have evidence of established and implemented quality, health, safety and environment management systems.
Are there any special legal provisions applicable to joint ventures?
Rights holders to an EPA must form an unincorporated joint venture in which each has a joint and undivided percentage participation interest. They jointly hold an exclusive petroleum right to conduct petroleum activities. Joint venture agreements must be approved by the minister of energy and water.
Rights holders are jointly and severally liable towards the state for obligations related to or arising out of petroleum activities. However, each is liable for its own taxes.
The rights holders must indemnify the Lebanese state against any third-party claims resulting from an act or omission in the carrying out of petroleum-related activities by the rights holders or the operator, affiliates, contractors or subcontractors.
On or after the award of a petroleum right, the minister can require the rights holder to provide financial security both towards the state and towards third parties, in addition to its decommissioning obligations. The rights holder's obligations under the EPA must be guaranteed by its parent company in the form of a parent company guarantee if the rights holder is:
- a pre-qualified company which has relied on the characteristics of its parent company to be pre-qualified; or
- a wholly owned affiliate of a pre-qualified company appointed to enter into the EPA.
No change of operator may take place without the approval of the Council of the Ministers. In addition, any amendment to the agreement shall be subject to the minister’s approval.
Can exploration and production rights be transferred to third parties?
Rights and obligations obtained through a petroleum right can be transferred or assigned in whole or in part only to a company which is qualified under the Offshore Petroleum Resources Law, and only after obtaining the approval of Council of Ministers on the basis of a proposal by the minister of energy and water based on the opinion of the Lebanese Petroleum Administration.
An assignment of shareholdings which provide decisive control of a company possessing a participating interest in a petroleum right is subject to the same rules. Transfer of a rights holder’s ownership or right of use of a facility on which a petroleum activity depends also needs the approval of the Council of Ministers, which is granted on the basis of a proposal by the minister of energy and water and based on the opinion of the Lebanese Petroleum Administration.
Assignment to a qualified third party is allowed if the minimum work commitment for the first exploration period has been fulfilled. Such an assignment will not be permitted if, following the assignment:
- there would be fewer than three right holders; or
- any rights holder would hold a participating interest of less than 10% or an operator would hold a participating interest of less than 35%.
Assignment to a wholly owned affiliate is possible if the rights holders agree to remain liable for or to guarantee the obligations transferred under the assignment.
Is hydraulic fracturing (‘fracking’) permitted in your jurisdiction?
Nothing in Lebanon prevents hydraulic fracturing.
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