Lebanon's Oil Wealth: Back to Square One
The completion of the presidential election has stirred "the republic's stagnant waters" and brought back to the table all the political and economic issues that local and regional circumstances had prevented from reaching suitable solutions. At the forefront of these issues is oil and gas exploration in the waters of Lebanon's Exclusive Economic Zone, especially after President General Joseph Aoun addressed his French counterpart, President Emmanuel Macron, upon receiving him at the presidential palace, asking him to urge TotalEnergies to resume its operations in Lebanon.
TotalEnergies is the operator in the consortium that includes it alongside Novatek and Eni, the consortium that won Blocks 4 and 9 as a result of the first licensing round launched in February 2017, while the two Exploration and Production Agreements were signed in 2018. Exploration operations, however, were delayed until February 25, 2020, the date the drillship Tungsten Explorer arrived at the drilling site of the first exploratory well in Block 4, while drilling ended on May 8, 2020.
The completion of drilling announced by the operator was in reality a halt to further drilling in Block 4, as the company stopped drilling operations after reaching a depth of 4,076 meters below the seabed instead of 4,200 meters, the depth stipulated in the Exploration and Production Agreement. Although the company's report spoke of the presence of a hydrocarbon system, it failed to find the reservoirs that constituted the primary objective of the exploratory drilling, which came as an unpleasant surprise for Lebanon.
The faltering of Lebanese oil and gas exploration continued with the drilling of the exploratory well in Block 9, the launch of which was delayed until August 24, 2023, following an initial delay caused by the damage inflicted by the Port of Beirut explosion on August 4, 2020, on the logistics base designated for carrying out petroleum activities in Lebanese offshore waters. The collapse of oil prices in global markets and companies' reassessment of their priorities also contributed to this delay, curbing the enthusiasm with which the operator had been working.
At a time when hopes were high that drilling in Block 9 would yield positive results, the decision to stop completing the exploratory well repeated the scenario of the halt in Block 4, as drilling stopped at a depth of 3,900 meters, contrary to the text of the agreement, which requires drilling to reach a depth of 4,400 meters. It is worth noting that stopping before reaching any of the specified drilling objectives amounts to relinquishing the entire block if a substitute well is not drilled, since the first well forms part of the minimum obligation commitments under the agreement.
Consequently, the operator was required either to drill a substitute well for the one it had stopped drilling, or to relinquish the block in question in accordance with the provisions of the Exploration and Production Agreement. In this case, the operator cannot invoke the cost of drilling the substitute well as a pretext, especially since the minimum work obligation commitment under the agreement is not a minimum expenditure obligation, but rather a minimum work (drilling) obligation, pursuant to Paragraph 5 of Article 8 of the Exploration and Production Agreement.
The operator did not merely stop drilling, it also resorted to stalling, and indeed refusing, to submit its report on the drilling results, which was supposed to be delivered to the Ministry of Energy within 6 months of the end of drilling operations, meaning that this deadline actually expired in mid-April 2024. The company continues to refuse to hand over its report on the drilling results despite the passage of nearly 10 months since the deadline expired.
The conduct of the operator, and indeed of the consortium as a whole, regarding participation in the second licensing round for Blocks 8 and 10 gives cause for suspicion, as the consortium submitted its bid to participate on the final day of the deadline and less than an hour before it closed. If there is an explanation for what the operator, and behind it the consortium, has done, starting from Block 4, passing through Block 9, and culminating in its participation in the second licensing round, it is to obstruct and delay Lebanon's attempts to develop its oil and gas resources, ultimately controlling their fate and trajectory.
Indeed, the developments that followed the halt in drilling the exploratory well in Block 4 showed that the real reason was to pressure Lebanon into proceeding with the demarcation of the southern borders of its Exclusive Economic Zone with the Israeli enemy. The same applies to Block 9, where the halt to completing the drilling showed that resuming exploration depends on the maturation of a regional settlement and the end of the war in support of Gaza. If this proves anything, it proves that extracting gas and oil is not a domestic decision, but a geopolitical decision whose timing is tied to regional and international calculations that transcend the country.
Yet the problem does not lie solely in the regional and international pressures that accompanied the exploration process, but also in the domestic approach to the entire dossier from the moment the model agreements and tender specifications were drafted, along with the amendments subsequently introduced to them. It also lies in the fact that the oversight of exploration operations by the Ministry of Energy and the Lebanese Petroleum Administration relies on the reports submitted by the operator, which renders the state's monitoring of exploration operations a mere formality and leaves it unable to provide accurate answers regarding the drilling results in either Block 4 or Block 9, or its future fate.
On the heels of the launch of the new presidential term and on the occasion of reactivating the oil and gas exploration dossier, it is imperative to address the loopholes contained in the model Exploration and Production Agreement. It is likewise imperative to incorporate into it provisions governing how all issues related to oil and gas extraction are handled, whether onshore in Lebanon or beneath the seabed of the Exclusive Economic Zone. Those in charge of the oil and gas dossier must also take the initiative to amend the special tender specifications and reconsider the conditions for participating in licensing rounds to bid on blocks in Lebanese offshore waters, particularly with regard to the size of the companies eligible to participate.
Translated from Arabic with AI. Read it in Arabic