The Business Year

Wissam Chbat

LEBANON - Energy & Mining

E&P bids in Lebanon to be awarded by end of 2017

Chairman of the Board, Lebanese Petroleum Administration (LPA)

Bio

Wissam Chbat has 20 years of experience in oil and gas E&P. He graduated from the American University of Beirut in 1995 (B.E Electrical Engineering) and holds a master’s in finance from the Ecole Superieure Des Affaires in Beirut and ESCP-EAP in Europe. He joined Schlumberger oilfield services in 1997 and held various field operations, operations management, and business development positions. He worked in Venezuela, Indonesia, West Africa, South Africa, Algeria and India, gathering broad international experience before joining the Lebanese Ministry of Energy and Water as the upstream advisor to the Minister in late 2009. Since late 2012 he has been a board member at the Lebanese Petroleum Administration and head of the geology and geophysics department. Since 2016 he has assumed an additional role as the chairman of the board of the Lebanese Petroleum Administration.

“After the signing of decrees pending for three and a half years, we renewed the launch of the bid round.“

The first oil exploration contracts are expected to be signed before the end of 2017. What strategy will LPA follow to evaluate the bids?

After the signing of the decrees that were pending for three and a half years, we renewed the launch of the bid round and started with a new qualification round that resulted in eight new companies prequalified to bid. We added these companies to the group of companies that had prequalified in 2013 and these two groups will be entitled to bid. There are 51 companies in total, and these companies are classified into two categories: operator and non-operator. The operator has more skills and financial strength and the critical parameters have been defined as total assets amounting to more than USD10 billion and experience in drilling and completed developments in waters of more than 500m in depth given that our environment involves deep water. For non-operators, they should have total assets of more than USD500 million and established oil and gas production; they have to prove that they are producing because we want exploration and production (E&P) companies. We currently have 13 qualified companies classified as operators while the rest are non-operators. We require a minimum of three companies that have to go into joint ventures to bid for one block. There should be at least one operator present among these three and the operator will form the consortium. The individual companies forming the consortium will have to pass each other internal controls prior to forming the consortium which would contribute having many companies not being able to be part of any consortium. The deadline to submit the bids is September 15 and a month after that the LPA will assess the results, prepare its report, and send it to the minister. The decision will be taken at the level of the council of ministers starting November 15, at least in theory. However, looking at the recent political developments with the parliamentary elections taking place in May 2018, this current government will award before year end as per the timeline set earlier (before year-end).

As the regulator, how does LPA provide the companies a secure environment to invest in?

LPA has a regulator role, though it does not regulate prices. Most of the regulators in any industry have a role in the pricing; however, we do not have such a role because it is different dynamics with oil and gas. Our role is to monitor, manage, and supervise the petroleum activities. The LPA is divided into six departments and each department is led by a department head, who is at the same time a board member, so we have six board members. For the last four years, our engagement with the companies was mostly promotional for which we used several tools. In addition, we have worked on transparency by announcing the intent to join the Extractive Industries Transparency Initiative (EITI). The importance of EITI is that it puts for the first time three parties on the same table: the government represented by the ministry and the LPA; the companies that will operate; and civil society, which will monitor this activity and ensure that it is done correctly. This is the importance of EITI; it is a platform where these three parties can discuss. In addition, with regards to transparency, we have worked on a draft law with one of the parliament members and have made all the non-mandatory recommendations by EITI mandatory within the law. We are going above and beyond the EITI in terms of transparency and, if this law is passed, this summarizes what has been done on the legal framework.

LPA included certain specifications in the exploration and production-sharing agreements to help domestic companies and the local market. What are the main highlights of these initiatives aimed at boosting the local economy?

Mainly, after we have awarded the oil and gas companies, these companies will need to subcontract other services and we therefore have a model contract that is based on a production-sharing contract whereby companies will invest and then recover their cost from production. If we have a solid and developed service industry in Lebanon, this cost can be re-injected into the Lebanese economy and this will even further boost our GDP and improve the oil and gas sector. For example, to increase the local manpower in this sector, we added in the contract the requirement that local workers make up 80% of the workforce. This will be extremely challenging for us to monitor and for it to be achieved. Thus, this 80% can be done gradually, and companies have to demonstrate that they are doing their best to achieve this. In the event that they cannot, we can help with solutions for a period of time. Now, with the service industry incentives that we have done and the 80% local content, we seek to capture part of the cost into the local industries of the country.

What are your main goals and priorities for the year ahead?

The main goals are to first award the offshore blocks, and we want to achieve this by the end of this year or the beginning of 2018. Our main objective for 2018-2019 is to have a commercial discovery. Once we have a commercial discovery and everything put in place during this time, we will then be able to start executing our medium- to long-term plans based on the discovery size and the potential for other discoveries as well. We are doing all the work to ensure we attract the best companies in terms of skills and experience in order to achieve our strategic goal, which is a commercial discovery.

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