Introduction

Recent discoveries in the eastern Mediterranean Sea – in particular, the major Zohr Field in Egypt, with estimated gas reserves of 30 trillion cubic feet (equivalent to 5.5 billion barrels of oil) – may constitute the world's largest natural gas find, according to Italian multinational Eni. Cyprus and Israel have also made significant discoveries in the past year, such as:

  • the Tamar Field, containing proven reserves of 7.1 trillion cubic feet;
  • the South Field, containing 81 billion cubic feet;
  • the Tanin Field, with 1.1 trillion cubic feet; and
  • the Aphrodite Field, with an estimated 7 trillion cubic feet.

Meanwhile, Delek and Noble Energy have partnered to explore the huge Leviathan Field, with an estimated 22 trillion cubic feet of gas reserves, as well as the Tamar Field. These discoveries will transform the eastern Mediterranean into a major energy hub.

The coalition comprising Egypt, Cyprus and Israel has left Lebanon behind in terms of regional developments. This has compelled the Lebanese government to resume oil and gas exploration as soon as possible, initially by ratifying two decrees concerning the delineation of blocks to be opened for bidding and the model exploration and production agreement, which are both required to complete the first licensing round that was launched in 2013. According to the energy minister, the country is making good progress and is preparing to launch a new licensing round. It has been reported that the government will convene in the coming weeks to pass these decrees.

Licensing round agenda

Although Lebanon is late in finalising the regulatory framework needed to ensure the smooth launch of oil and gas exploration activities, the time has been used sensibly by the Lebanese Petroleum Administration (LPA) to acquire an in-depth understanding of the relevant technical and economic data. Lebanon leads the region in terms of the number and sophistication of deep-sea studies undertaken, as numerous two-dimensional and three-dimensional seismic surveys have been conducted within the country's exclusive economic zone in the past few years. According to initial estimates, experts believe that Lebanese waters contain most of the eastern Mediterranean sub-sea gas reservoirs.

During this time, the LPA has also redefined its agenda for the first licensing round, as set out below.

Phase 1

For Phase 1, the LPA envisages:

  • approval of the decree relating to the model exploration and production contract, with an intended exploration period of six years (instead of 10 years as previously);
  • submission of a draft tax law governing petroleum activities to the Council of Ministers for approval;
  • the establishment of a final window in which to receive bids (from six to eight months); and
  • the development of a strategy to offer the blocks in phases.

Phase 2

During Phase 2, the LPA will:

  • communicate with previously qualified companies to gauge their interest in submitting bids;
  • organise promotional campaigns to market the licensing round internationally; and
  • consider the possibility of opening a new qualification round to attract new participants in the first licensing round, under the same evaluation criteria previously used, while maintaining the results of the first qualification round (launched in March 2013).

Phase 3

During Phase 3, the LPA aims to:

  • prepare a framework agreement with Cyprus to share common reservoirs between the two countries;
  • resolve the exclusive economic zone delimitation issue with Israel through third-party mediation, subject to political consensus;
  • foster regional cooperation with Egypt and Cyprus; and
  • prepare Lebanon to join the Extractive Industries Transparency Initiative.

Phase 4

Phase 4 will see:

  • ratification by Parliament of the tax law governing petroleum activities;
  • development of a strategy for local participation in upstream activities; and
  • development of a national strategy on gas usage and resolution of the challenges facing exports through pipelines and liquefied natural gas.

Phase 5

The goals of Phase 5 are to:

  • assess bidders' offers and forward them to the minister of energy for further submission to the Council of Ministers, which will issue the ultimate decisions;
  • begin work on a law to establish a sovereign wealth fund; and
  • complete the draft onshore petroleum law.

With these encouraging developments, Lebanon is looking forward to a productive year in the oil and gas sector.

For further information on this topic please contact Mohamed Y Alem or Jana Tebbo at Alem & Associates by telephone (+961 1 999 717) or email (mohamed.alem@alemlaw.com or jana.tebbo@alemlaw.com). The Alem & Associates website can be accessed at www.alemlaw.com.

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