1 st Licensing Round Bidding amp Contractual Terms Arab Economic Forum 910 May 2013 Wissam Zahabi Head of Economic amp Finance Dept Concessionary Private Ownership of resources Royalty Tax ID: 573107
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Oil and Gas Prospects in Lebanon1st Licensing Round: Bidding & Contractual Terms
Arab Economic Forum9-10 May 2013
Wissam Zahabi – Head of Economic & Finance Dept.Slide2
ConcessionaryPrivate Ownership of resourcesRoyalty / Tax
Fiscal Regimes
Contractual
State retains ownership of resources
Profit petroleumSlide3
Activities & Cash Flow (oil profile)
Pre-license
Exploration
Development
Production
Abandonment
Production
Enhanced.
Costs
Income
Time
Government
Licensing
PDPSlide4
Production Sharing Contract
ROYALTY
COST
RECOVERY
OIL
PROFIT
OIL
CONTRACTOR
SHARE OF
PROFIT OIL
GOVERNMENT
SHARE OF
PROFIT OIL
TOTAL
OIL
PRODUCED
Corp. tax
GVT. TAKE
COST
COMPANY
PROFIT Slide5
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 Sharing
Industry Standard Structure
Robust 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 gas
Cost petroleum up to percentage of petroleum produced, based on bid
Profit petroleum split based on bid -Adjustment based on R-Factor
L
ebanese employment: At least 80% Lebanese nationals
Procurement: Lebanese contracting requirement where competitive
Environment and Decommissioning: International standard requirements and funding
Legal Basis
Structure
Phases
Economics
Protects Key Lebanese Interests Slide6
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.Slide7
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 infrastructureAssociated Natural Gas in Crude Oil Discovery must be disposed of or delivered free of charge to StateSlide8
Key Economic TermsSlide9
ProcurementGeneral rule: competitive tendersLebanese contractors are given preference:
Services –price less than 110% of foreign competitorGoods – price less than 105% of foreign competitorMinister 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 staffSlide10
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)Slide11
Bidding ParametersSlide12
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 processSlide13
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 LebanonLarge 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 Slide14
Thank You