A Reading of Lebanese Oil and Gas Exploration and Production Agreements
TotalEnergies recently postponed, without any justification, the delivery to the Lebanese state of its final report on the exploration results in Block 9, which a delegation from the Lebanese Petroleum Administration had been scheduled to receive in the French capital at the end of last March before the appointment was canceled without setting any new date. This marks the third postponement of the report's delivery, after the first date had been set for the end of last February, while the second date was at the beginning of the first half of last March and was postponed a third time until the end of that same month, putting the spotlight on the exploration and production agreements and bringing them back up for debate once again.
It is worth noting that the halt to drilling occurred abruptly and with ambiguous timing, coming a week after Operation Al-Aqsa Flood, which took place on October 7, 2023. While the depth of the well drilled was supposed to be no less than 4,400 vertical meters below the seabed (True Vertical Depth sub-sea, TVDss) as an exploration well, pursuant to Item c of Paragraph 2 of Article 8 of the Exploration and Production Agreement in Block 9, the drilling depth was limited to just 3,900 meters. Moreover, the reasons for the halt announced by the operator do not conform to the provisions of the agreement, particularly the clauses of the sixth paragraph of its eighth article.
On the other hand, and pursuant to the provisions of the articles set out in the preceding paragraph above, the operator (or the right holders) was required to drill a substitute well for the one where drilling was halted. This is on the grounds that the well drilled in Block 9 forms part of the minimum work obligations, especially since the halt occurred before reaching any of the objectives specified for drilling this well, rendering the halt to drilling the well tantamount to abandoning it. Nor can the operator invoke the costs of drilling the substitute well as an excuse, particularly since the minimum work obligation commitment under the agreement is a minimum work obligation and not an expenditure obligation, according to the fifth paragraph of the eighth article referred to above.
Notably, the Exploration and Production Agreement in Block 9 goes no further than stipulating that the number of exploration wells required to be drilled be no fewer than one exploration well (Sub-clause 1, Item c, Paragraph 2, Article 8 of the Exploration and Production Agreement in Block 9), at a time when comparable contracts require the drilling of no fewer than three exploration wells. This is because the discovery rate for a productive well is one out of five wells, meaning that 80% of the wells drilled turn out to be dry while the proportion of productive wells is limited to 20%. This requires rectification in any future exploration and production agreement, so that the number of exploration wells the operator is required to drill is no fewer than three wells at a minimum in each phase of exploration.
As for the final report, some might argue that the company should have submitted it to the Lebanese Petroleum Administration within sixty days of the halt to drilling operations, especially since this timeframe is the central deadline for both the right holders and the state, according to the two Exploration and Production Agreements for petroleum activities in Blocks 4 and 9, particularly Articles 7 and 10 thereof. What is striking in these two agreements is the absence of any articles or provisions setting a time limit for the operator to submit a report on the results of the exploratory drilling it carries out in the licensed block.
Moreover, neither of the two agreements addressed in any of its articles the issue of submitting a report on the results of drilling the exploratory well to the Lebanese state, while dealing in detail with the first and second exploration phases, their durations ranging between three years for the first phase and two years for the second phase, extendable by one year, in addition to the exploration plans for each phase of exploration. This calls for amending the tender protocol for offshore licensing rounds and the model Exploration and Production Agreement issued under Decree 43/2017, so that it provides for the time limits with which the operator must comply in submitting its reports in order to ensure the proper conduct of work.
There are analyses suggesting that TotalEnergies relinquished Block 4 in October 2023 so that responsibility for it would revert to the Lebanese state, thereby restoring the possibility of including it in upcoming licensing rounds. In reality, under the eighth paragraph of the seventh article of the Exploration and Production Agreement in Block 4, the right holders (that is, the consortium of companies that obtained the license) are deemed to have relinquished the entire block if they fail to submit an exploration plan for the second phase or if the state rejects the plan submitted by them.
As for the right holders' relinquishment of Block 4, it cannot be due to a lack of gas beneath Lebanese waters, especially since this consortium was among the keenest parties interested in exploring for gas and oil in Lebanon's Exclusive Economic Zone, as evidenced by its submission of two applications to participate in the second licensing round for bidding on Blocks 8 and 10 less than an hour before the application deadline expired. The hesitation, indeed the evasion, in delivering the final report on the drilling results in Block 9 is nothing other than an attempt to frustrate the hopes of the Lebanese of possessing oil wealth.
The outcome reached by the two Exploration and Production Agreements in Blocks 4 and 9 of the Exclusive Economic Zone must serve as an incentive for those in charge of the oil wealth portfolio to rectify the loopholes contained in the tender protocol for licensing rounds for bidding on offshore blocks and the model Exploration and Production Agreement referred to above. Those in charge of the oil and gas portfolio must take the initiative to amend the tender protocol and include articles regulating how to deal with all issues related to the extraction of oil and gas, whether onshore in Lebanon or beneath its waters on the eastern coast of the Mediterranean Sea.
Here it is necessary to recall that the Italian company Eni succeeded in discovering the Egyptian Zohr field off the Egyptian coast in 2015, after the American company Shell had worked on exploring the area over a period of 15 years to no avail. By contrast, the exploration attempts carried out by TotalEnergies in Blocks 4 and 9 represent only a tiny fraction of Shell's attempts in Egyptian waters. Perhaps what inspires confidence in the availability of gas and oil in Lebanon is the seismic survey of the waters of the Exclusive Economic Zone, which reveals geological formations suitable for storing oil and gas, similar to the rest of the areas of the eastern coast of the Mediterranean Sea.
Meanwhile, invoking the Israeli attacks taking place in southern Lebanon, the continued vacuum in the presidency of the republic, which has entered its second year, and the presence of a government whose role is limited to caretaker duties does not justify state institutions continuing in a state of stagnation and loss of standing. Running public utilities must go beyond following up on the day-to-day affairs of these utilities to rehabilitating them so that they keep pace with the technological development around us. The world is undergoing rapid development touching every aspect of human life, while transaction procedures in public administrations remain stuck in the era of the 1960s.
Translated from Arabic with AI. Read it in Arabic