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UPDATE 1-Lebanon to restart oil, gas licensing round after three-year delay
January 5, 2017 / 6:00 PM / a year ago

UPDATE 1-Lebanon to restart oil, gas licensing round after three-year delay

(Adds analyst comment, background)

BEIRUT, Jan 5 (Reuters) - Lebanon intends to restart its first oil and gas licensing round after a three-year delay, the energy minister said on Thursday, hoping to kick-start the development of a hydrocarbon industry stalled by national political paralysis.

In its first sitting since being formed in December, Lebanon’s new cabinet passed two decrees on Wednesday defining the blocks and specifying conditions for production and exploration tenders and contracts.

The country’s offshore resources could bring a major economic boost to a country whose financial mainstays including tourism have been hit by conflict in the region and Beirut’s own political turmoil. But analysts warn of challenges ahead and that investor confidence has been shaken by the setbacks.

Lebanon will offer five offshore blocks for exploration and production and is to hold another pre-qualification round for companies interested in bidding, Minister of Energy and Water Cesar Abou Khalil told a news conference.

Lebanon, along with Cyprus, Israel and Egypt, sits on the eastern Mediterranean gas field discovered in 2009.

The Lebanese government has estimated with a probability of 50 percent it has 96 trillion cubic feet of natural gas reserves and 865 million barrels of oil offshore, but squabbling between parties has prevented the passage of vital laws needed to develop the sector.

Abou Khalil said if all goes to plan exploration contracts could be signed in nine months and drilling could take place in as little as a year and a half after that because a lot of the necessary mapping and analysis has already been done.

CAUTION

With large debt, stagnant growth and bearing the costs of more than 1 million refugees from neighbouring Syria’s conflict, Lebanon would benefit from the revenues, job creation and increased economic activity that might accompany a hydrocarbon industry.

But analysts urge caution, saying until drills actually break ground, there is no way of telling how much gas or oil there really is and potential economic impact is a complete unknown.

Sami Atallah, executive director of the Lebanese Center for Policy Studies, said it could take around seven years before revenues start to flow.

“Oil and gas are not the answer,” he said. “You don’t want it to stall reforms ... to be a disincentive for making changes to the economy.”

Industry watchers say Lebanon needs to now produce transparent road maps and regulatory framework for the energy industry. This will boost investor confidence and avoid the accusations of corruption which surround many of Lebanon’s public services and industries such as refuse disposal, telecommunications and electricity.

“The oil and gas industry can be a curse or a blessing,” said Diana Kaissy, of the Lebanon Oil and Gas Initiative, a non-governmental organisation promoting transparency and policy development in the hydrocarbon sector.

“Lebanon is blessed with the chance of starting straight from the beginning with its oil and gas industry. It can learn from others’ mistakes and best practices,” said Kaissy, who is also part of international transparency campaign group Publish What You Pay.

NEXT STEPS

In 2013, 46 companies qualified to take part in bidding for oil and gas tenders, 12 of them as operators, including Chevron , Total and Exxon Mobil.

Abou Khalil said he expects these 46 companies to be interested still and that Lebanon will hold another pre-qualification process to increase competition and secure the best deal.

Political risk consultant Mona Sukkarieh said investor enthusiasm for the 2013 tender was high, but the delays have undermined this.

“It is essential now to do things right, even if not swiftly ... A competitive fiscal regime, in addition to regulatory and fiscal stability are key to gain back investors’ confidence,” said Sukkarieh, co-founder of Beirut-based Middle East Strategic Perspectives (MESP).

Political paralysis left Lebanon without a president for more than two years. The government was unable to tackle long-pending economic and development issues such as garbage disposal, electricity, water and stock market privatisations.

The deadlock finally came to an end late last year with the election of Michel Aoun as president and the formation of a new government under Prime Minister Saad Hariri.

“At times, country risk might be high, but that does not entirely conceal Lebanon’s energy potential. Oil and gas companies are used to operating in areas where political and country risks are high,” Sukkarieh said.

The government’s next task is to agree a tax regime for the nascent hydrocarbon industry.

On Wednesday, the cabinet also agreed to form a ministerial committee to discuss the draft tax law. Abou Khalil said the committee would meet on Thursday.

“The committee is committed to finalise comments on the tax law (with) the shortest delay,” he said.

“It might take a couple of weeks, and then we will go back to the council of ministers and we will transfer the (draft) law to the parliament, where it is expected to be passed in the first legislative session.” (Reporting by Lisa Barrington and Laila Bassam; Editing by Dale Hudson and Susan Fenton)

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