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News // Oil and gas worldwide

Policy risks for Lebanon’s 2nd offshore round despite stable fiscal terms

07 March 2019 , 12:07Neftegaz.RU434

Beirut, March 7 - Neftegaz.RU. Political and economic instability may affect Lebanon’s 2nd offshore licensing round, according to GlobalData.

 

The company’s ‘Lebanon upstream fiscal and regulatory report’ states that Lebanon is expected to offer a stable fiscal framework for the 2nd round, which comes amid continued interest in the Eastern Mediterranean from new discoveries and as plans are made for Lebanon’s 1st offshore exploration well later this year.

 

Over the coming years, Lebanon is expected to pass some missing pieces of petroleum legislation, such as the one concerning onshore activities and the creation of a sovereign wealth fund, though these missing regulations are unlikely to significantly affect the offshore operations.        

 

Alessandro Bacci, Oil & Gas Analyst at GlobalData, comments: «Lebanon’s production sharing agreements (PSAs) terms are relatively competitive in comparison to the terms of neighboring countries, so that the return offered to investors is in a positive range in the regional context. The award of 2 blocks with the 1st licensing round to a consortium comprising Total, Eni, and Novatek suggests that if the exact terms of the 2nd licensing round PSAs are still favorable, similar companies may be interested once again.»

 

However, the country’s heightened policy risks may reduce the attractiveness to prospective new investors. Forming the new government took 8 months after the May 2018 parliamentary elections, and it suggests that development of the petroleum regulatory framework could also suffer from delays.

 

On top of this, the country, which has one of the world’s highest debt-to-GDP ratios, is facing an economic crisis that might force the government to change for the worse its fiscal policy, deterring future investments.  

 

Bacci adds: «Political delays may cause problems for licensing and operators. Moreover, if hydrocarbons are discovered in commercially exploitable quantities, economic pressures could prompt tougher policies such as subsidized domestic market obligations, though stability clauses should protect existing licensees.»

 

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