Oil and Gas Prospects in Lebanon 1 st Licensing Round: Bidding & Contractual Terms Arab Economic...
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Transcript of Oil and Gas Prospects in Lebanon 1 st Licensing Round: Bidding & Contractual Terms Arab Economic...
Oil and Gas Prospects in Lebanon1st Licensing Round: Bidding & Contractual Terms
Arab Economic Forum9-10 May 2013
Wissam Zahabi – Head of Economic & Finance Dept.
Arab Economic Forum 9-10 May 2013
Concessionary
– Private Ownership of resources
– Royalty / Tax
Fiscal Regimes
Contractual
– State retains ownership of resources
– Profit petroleum
Arab Economic Forum 9-10 May 2013
Activities & Cash Flow (oil profile)
Pre-license Exploration Development Production AbandonmentProduction
Enhanced.
Costs
Income
Time
Government
Lic
en
sin
g
PD
P
Arab Economic Forum 9-10 May 2013
Production Sharing Contract
ROYALTY
COST RECOVERY
OIL
PROFITOIL
CONTRACTORSHARE OF
PROFIT OIL
GOVERNMENTSHARE OF
PROFIT OIL
TOTAL OIL
PRODUCED
Corp. taxGVT. TAKE
COST
COMPANYPROFIT
Arab Economic Forum 9-10 May 2013
Exploration & Production Agreement
Offshore Petroleum Resources Law (OPR Law)Petroleum Activities Regulation (PAR)EPA is a commercial contract and a roadmap of OPR Law and PAR
Exploration and Production Agreement with Production SharingIndustry Standard StructureRobust economic incentives to explore, develop and produce
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
Royalties: sliding scale for crude oil, flat 4% for natural gasCost petroleum up to percentage of petroleum produced, based on bidProfit petroleum split based on bid -Adjustment based on R-Factor
Lebanese employment: At least 80% Lebanese nationalsProcurement: Lebanese contracting requirement where competitiveEnvironment and Decommissioning: International standard requirements and funding
Legal Basis
Structure
Phases
Economics
Protects Key Lebanese Interests
Arab Economic Forum 9-10 May 2013
The Partners
The State, represented by the Minister
Right Holder
Operator / Right Holder
Right Holder
Exploration and Production Agreement
(EPA)
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
Development and Production
Gas Infrastructure and Marketing
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
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 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 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
Profit tax
• The OPR Law requires companies to pay all Lebanese taxes (see Annex)
• This is reflected in the EPA
Other Issues
• State priority right to take royalties and production share in natural gas
• State priority right to purchase natural gas (international prices)
Arab Economic Forum 9-10 May 2013
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
Emphasis on Local Content
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
BIDS TO BE SUBMITTED BY NOVEMBER 4,
2013
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)
Arab Economic Forum 9-10 May 2013
Bidding Parameters
Grading SystemTender 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
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)
Arab Economic Forum 9-10 May 2013
Selection Process & Award
Short-listing consortia
Signature of EPA
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)
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
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
Arab Economic Forum 9-10 May 2013
Lebanon Advantagesin 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
Thank You