Lebanon hopes to lure IOCs with attractive terms

The first round of bidding will close on August 14, 2014

Lebanon is believed to be offering more favourable terms than Israel or Cyprus.
Lebanon is believed to be offering more favourable terms than Israel or Cyprus.

With attractive exploratory potential, the Levant basin, offshore Lebanon, presents an opportunity for International Oil Companies (IOCs) to position themselves in the promising eastern Mediterranean region, says an analyst with research and consulting firm GlobalData.

According to Rabie Khellafi, GlobalData’s Lead Analyst covering Upstream Oil & Gas in the Middle East and North Africa region, various opportunities and challenges exist in the exploration of offshore Lebanon. The country’s first bidding round has been postponed for the fourth time, and the number of bids received when the round closes on August 14, 2014, will show how interesting the area is to IOCs.

Khellafi believes that Lebanon’s fiscal regime is both attractive and competitive with the offshore acreage currently being offered, in comparison to neighboring countries Israel and Cyprus, which have a similar prospective potential.

The analyst says: “Lebanon’s offshore blocks boast large sizes varying from 486 square miles (mi2) to 917 mi², but it is not unusual for frontier countries, or even producing countries, to offer blocks of such sizes to fuel investor interest. IOCs are ultimately attracted by blocks with large acreages, as this allows them to explore different zones under the same contract or permit, and increases exploration success probabilities.”

According to Khellafi, Lebanon’s fiscal terms and bidding round strategy will be crucial in attracting the IOC investment needed to successfully develop and produce reserves from any commercial discoveries. However, he adds that a number of marketing and, in particular, political challenges need to be considered carefully before investment decisions are made.

The analyst says: “The ongoing delay experienced in launching the first international bidding round is the result of unresolved political instability in Lebanon, which has been typical of the last four decades and proves that future political disagreement may interfere further with exploration and production activities in the country.

“The delimitation of the Exclusive Economic Zone with Israel is another difficulty for Lebanon in its offering of Blocks 8 and 9, where disputes over the maritime borders have recently arisen between the two countries. As no progress has been made towards resolving this issue, it may take years or even decades to conclude. A heightened security risk of conflict may also present itself if the zones closer to the disputed area prove prolific.”

Ultimately, Khellafi states that the success of Lebanon’s first bidding round is both crucial and dependent on a large number of factors, and it remains to be seen what impact these challenges will have on the round when bids are received on August 14 this year.

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