It is still early to speak of an established oil and gas industry in Lebanon, as the country is still in the phase of exploration. Albeit promising, the reserve levels are still uncertain. In fact, several researches and seismic studies conducted by different sources, in the last decade, have estimated at least 25 Trillion Cubic Feet of natural gas reserves in Lebanon’s offshore knowing, however, that the State’s published figures in 2013 were even higher, indicating the existence of around 96 Trillion cubic feet of natural gas reserves, and 865 Million barrels of oil reserves. The promises in Lebanon’s offshore are reinforced by the significant discoveries of natural gas reserves in the neighbouring countries.

Lebanon’s exclusive economic zone (EEZ) comprises ten blocks¹ with a total area of 21,500 Km². Blocks 4 and 9 were awarded in 2018 to the consortium of TotalEnergies (acting as the operator), Eni, and Novatek (replaced by Qatar Energy in January 2023).

Explorations in Blocks 4 and 9 did not yield positive results. In October 2023, the consortium relinquished Block 4 back to the State, and announced the negative preliminary findings in Block 9 after exploratory drilling conducted by offshore drilling contractors, “TransOcean”. Said results did not thwart the consortium. In fact, the latter applied, in October 2023, for the State’s second licensing round to bid on Blocks 8 and 10. The State is set to approve the offer made by the consortium, soon.

Naturally, there is no production yet. The local market’s demands are met through importation. It is still expected, however, that the sector would contribute, in the future, to achieving self-sufficiency by meeting the needs of the local market, and ensuring the strengthening of Lebanon’s trading capabilities through exportation.

Footnotes:

¹ The Block Delineation Decree No. 42 dated 19 January 2017 divides the Lebanese Offshore and the EEZ into 10 designated blocks with specified coordinates.

There is no legislation yet governing onshore petroleum exploration and production.

As to offshore petroleum², exploration and production is governed by the Offshore Petroleum Resources Law no. 132 dated 24 August 2010 (OPRL), Law no. 57 dated 5 October 2017 on the tax provisions governing petroleum activities (Petroleum Tax Law), and Law no. 84 dated 10 October 2018 on strengthening the transparency in the petroleum sector (Transparency Law), as well as subsequent decrees implementing the OPRL, such as decree no. 7968 dated 7 April 2012 establishing the Lebanese Petroleum Administration (LPA), and decree no. 10289 dated 30 April 2013 on the Petroleum Activities Regulations (PAR). The State also passed several other decrees that together form the legal and regulatory framework for the petroleum sector in Lebanon.

OPRL regulates mainly petroleum reconnaissance, award of exploration and production including exploration and production agreement entered between the Lebanese state (the state) and the right holders, petroleum production and transportation, entitlements and fees, decommissioning of facilities, and health and safety and environment requirements. The exclusive ownership and management of the State’s petroleum resources are vested in the State. Entities wishing to conduct petroleum activities in Lebanon must obtain the State’s authorization and the latter reserves its right to participate in and/or carry out similar activities. Petroleum Tax Law subjects right holders to taxation on petroleum activities, including income tax, tax on salaries and wages, stamp duty tax, built property tax, and value added tax (VAT). Transparency Law places a publication and disclosure duty, towards the public, on the council of ministers, the ministry of energy and water, the LPA, as well as other bodies directly linked to petroleum activities, regarding information related thereto. In order to enhance transparency and fight corruption, Transparency Law prohibits certain persons from investing in petroleum activities such as the president of the republic, the speaker of the parliament, the premier, ministers, staff and consultants.

With regards to granting rights in the sector, the minister of energy undertakes the necessary preparations for the announcement of a petroleum licensing round. Such licensing round would be announced based on a study carried out by LPA, and would include a strategic environmental assessment study conducted by the State prior to any granting of rights.

Prior to exploration and production, a reconnaissance licence may be granted for a period up to three years. Said licence is not exclusive and would not confer upon the right holder any preference or privilege with respect to any other petroleum right. All data resulting from the reconnaissance license remains the sole property of the State. The licence may be extended by a period of up to one year, not to exceed a total period of three years.

Following a bidding process, the State may grant an exclusive licence for undertaking petroleum activities in line with an “exploration and production agreement” (EPA)³. After the closing date for offers, the LPA evaluates and proposes a short list of applicants to the minister of energy who would then negotiate with them based on the statutory requirements. The minister would then submit a report to the council of ministers with the results of negotiations and the applicants selected, with a recommendation for signing an EPA. Upon approval of the council of ministers, each of the selected applicants becomes the holder of an exclusive petroleum right to carry out petroleum activities and the right holders together would form an unincorporated joint venture that signs the EPA, one among them acting as the operator.

With regards to production, the procedures and required documents relating to the production permit are set by virtue of a decree issued by the council of ministers based on the minister of energy’s recommendation, upon the LPA’s consultation. Upon application by the right holder, said minister, based on the LPA’s consultation, may grant production permits for determined periods with regards to the quantity of petroleum that could be produced.

Other licences may be granted, e.g. the licence for the development and operation of a facility.

Footnotes:

² Petroleum is defined in OPRL as “oil, or natural gas or both and all kinds of gas or other hydrocarbons existing in their natural state in the subsoil of the seabed, as well as other hydrocarbons in a liquid or gaseous state”.

³ EPAs are only awarded to pre-qualified applicants, knowing that the pre-qualification criteria are in favour of large oil companies who would have the expertise and capital required.

A reconnaissance licence would include the following key terms without limitation: (1) duration of the license; (2) management of operations conducted pursuant to the licence; (3) insurance to be established in relation to the activities performed pursuant to the license; and (4) implementation and timing of specific activities. Moreover, the law requires right holders to conduct reconnaissance operations in a prudent manner, and according to applicable laws.

As to exploration and production, the license would include two phases: (i) an exploration phase not exceeding ten years, and (ii) a production phase not exceeding thirty years. the EPA signed between the State and the right holders would contain the following key terms, without limitation: (1) the coordinates of the awarded area; (2) the allocation of participation interest between right holders; (3) the duration of the EPA; (4) potential state participation; and (5) standard minimum guarantees covering the minimum work obligations⁴. The exploration phase, if shorter than ten years, may be extended by the council of ministers within the ten years’ limit; the production phase can also be extended, but within the thirty years’ limit.

Footnotes:

⁴ A right holder may only surrender a petroleum right pursuant to the EPA provided the minimum work commitment has been fulfilled or the minimum expenditures, as well as financial obligations due to the state, including taxes have been paid (article 25 OPRL).

No; for the time being, the focus is on the offshore conventional oil and gas resources. There is no regulatory regime for unconventional resources either.

The council of ministers is primarily the body responsible for enacting legislations and policies regarding petroleum resources. The minister of energy is responsible, inter alia, for ensuring a proper implementation of the legislation and policies, and for contracting with the international oil companies.

The LPA, a financially and administratively autonomous body, is responsible for the regulation and management of licenses in Lebanon’s EEZ. The LPA plans, supervises and manages the petroleum sector, including undertaking all necessary preparations related to licensing rounds and coordinating with companies. The LPA is composed of six administrative units: strategic planning unit, technical and engineering unit, geological and geophysical unit, legal unit, economic and financial unit, and quality health safety and environment (QHSE) unit.

As mentioned earlier, petroleum resources are owned and managed exclusively by the State. Rights can be transferred to right holders, without precluding the State from conducting or participating in petroleum activities.

The State’s share in the petroleum licence and/or the EPA is usually set by virtue of a decree issued by the council of ministers based on the minister of energy’s recommendation and LPA’s opinion. It is worth noting that the State did not retain shares in the two EPAs signed with the consortium for Blocks 4 and 9.

Furthermore, OPRL notes that the State may incorporate a national petroleum company in case of promising commercial opportunities. No such company has been incorporated till date.

There are no particular requirements or restrictions on the participation of foreign oil and gas companies in the industry (save for Israeli entities because of the Israel Boycott Regulations in place). In fact, as pointed earlier, Lebanon is a welcoming venue for foreign oil and gas companies, as the latter have the expertise, infrastructure and capital required for petroleum activities.

Generally, OPRL requires that the petroleum activities are conducted in a responsible and prudent manner, and in accordance with the law, including practices and methods reasonably expected from internationally experienced operators. Moreover, the right holders must present the necessary qualifications and skills. No petroleum right can be given to any company except after the LPA’s verification of the company’s documents, including registration, ownership, management, financial and taxation matters, and previous and current experience.⁵

When it comes to exploiting local human resources, article 67 OPRL set forth certain rules on right holders (who are usually foreign companies). For instance, a right holder (and subcontractors) is required to prioritise Lebanese persons in awarding contracts for the construction of a facility, and to give preferential treatment to the procurement of material, goods and services related to petroleum activities when terms and conditions offered by Lebanese suppliers (that are subject to public tender) are equal to their competitors’. Moreover, the right holder (and subcontractors) must employ qualified personnel of Lebanese nationality whenever available, as well as organise and fund the training of Lebanese personnel associated with petroleum activities, to facilitate their employment at all levels of the management.

On another note, petroleum rights may be assigned by the foreign right holders, only to qualified companies, subject to the prior approval of the State. The same requirements apply to any direct assignment of any right in a right holder, including inter alia, assignment of shareholdings and other ownership of shares. The prior approval of the State is also required for the transfer of ownership or right of use of a facility. Petroleum right holders and operators are also under the requirement to inform the tax administration about any direct or indirect, partial or full transfer of their shares or other rights within one month from its date of occurrence.

Footnotes:

⁵ Articles 61 to 63 OPRL

Petroleum activities are subject to local laws relating to the protection of the environment, mainly law No. 444 dated 29 July 2002, to the extent that such activities are conducted in the territorial waters. OPRL, for example, entrusts upon the minister of energy the responsibility of taking necessary initiatives or measures to protect the waters, health, properties and environment from pollution in states of emergency, and to coordinate with other concerned authorities in this regard.

Articles 7 OPRL and 11 PAR require the state to conduct a strategic environmental assessment study prior to awarding petroleum rights or to licensing petroleum activities. Moreover, the operators and right holders are required to submit an environmental impact assessment study⁶ along with their plan for development and production, or plan for cessation of petroleum activities. Generally, article 32 OPRL requires the operator to submit to the minister of energy, on behalf of the right holders, a detailed environmental impact assessment based on an approved programme, as part of any plan whether for development, production, transportation, storage or usage. We note that a permit must also be obtained from the minister, in coordination with the minister of environment, before any flaring or cold ventilation to the extracted components. OPRL also requires the right holders to restitute the environment to the condition it was in prior to any accident, in the context of emergency preparedness requirement.

On the other hand, right holders are required to guarantee that they, their contractors, and employees comply with the statutory environmental, and health and safety requirements (article 128 PAR).

As to health and safety, in particular, right holders are required to prepare and publish health and safety plans, prior to conducting any petroleum activities, including a plan for emergency conditions. Right holders are also expected to establish safety zones around facilities (articles 54 et seq. OPRL).

Footnotes:

⁶ In accordance with Decree No. 8213 dated 24 May 2012 regarding “strategic environmental assessment for policies, plans and programmes of the public sector”, as per articles 11 and 12 PAR.

The State, by granting licences to companies for exploiting oil and gas resources, requires each right holder to pay a yearly fee (for each km²) in exchange for exploiting the awarded area. The yearly fee is paid as of the first year that follows the exploration phase, which duration is set in the EPA. Such yearly fee is progressive and is set by the law as follows (article 68 PAR): for the first year, US$350 for each km², and for the following years, US$400 for each km². Moreover, petroleum extracted from a reservoir in an area awarded by virtue of an EPA shall be divided into (i) royalties to the State, (ii) cost petroleum⁷ and (iii) profit petroleum⁸. Each right holder must settle royalties to the State and is entitled to its share from the cost petroleum and profit petroleum, according to its share in the EPA. It is worth noting that the State reserves its right to collect royalties in kind, instead of cash. Article 72 PAR sets forth the formula used to compute the State’s royalties; same are computed daily. As to crude oil, royalties are calculated in a progressive manner correlated with the quantity of extracted quantities (the ratio would be set forth in the EPA). As to other petroleum products, royalties are based on a fixed percentage, as set in the EPA.

With regards to tax deductions or incentives, right holders are exempt, by virtue of the Petroleum Tax Law, from the built property tax on constructions, installations and fixations used to perform petroleum activities. As to VAT, right holders are subject to the standard local rate, provided that the activity of transporting petroleum products outside the Lebanese territories and maritime waters is exempt from VAT (subject of LPA’s approval). Moreover, transactions between right holders and operators related directly to the EPA and that only cover the distribution of expenditures are not subject to VAT and do not require the issuance of invoices to support them. And finally, the Petroleum Tax Law exempts from customs duties “equipment, machinery, tools, vehicles, spare parts and materials, that do not have equivalence in the national production and that are imported by each right holder or operator or their agent to be used in the petroleum activities or to be re-exported”. It also exempts from customs duties, import of household appliances, clothing and personal effects held for personal use by the foreign employees working for the right holder or operator in Lebanon, or by their families.

Footnotes:

⁷ The portion of petroleum extracted and available to each right holder to cover the cost and expenses incurred in carrying out petroleum activities.

⁸ The portion of petroleum extracted in excess of cost petroleum, distributed amongst right holders.

The laws do not restrict the exportation of production per se, but subject it to the approval of the LPA. In fact, same is inferred from the VAT exemption for the transportation of petroleum products outside the Lebanese territories and maritime waters, as noted above. The lack of restriction is also inferred from article 50 PAR, which requires the right holders to include in their reports of production (submitted daily to the LPA as of commencement), inter alia, the volume of export per facility. There are no requirements under applicable laws for the sale of the production into the local market, noting that the state benefits from the right to collect royalties in kind, instead of cash, as noted above.

There are no specific terms in respect of cross-border sales or deliveries. Nevertheless, sale or transfer of interests in petroleum extracted from a reservoir in an EPA area shall be made in accordance with the terms and conditions and procedure adopted in the global market (article 40 OPRL). The minister of energy must be informed in advance of any sales or transfer of interests. And regulations for sale of or the transfer of interest in petroleum is decreed by the council of ministers.

Decommissioning is governed by articles 46 et seq. OPRL and 59 et seq. PAR. Right holders are under the duty to notify the minister of energy, without delay, of the time of the expected permanent cessation of operation in a facility. A plan for the cessation of petroleum activities and decommissioning of one facility or more is also required to be submitted at the earliest three years prior to, and not later than one year prior to the date of expiry of an EPA or licence or the planned surrender of the right or termination of the use of a facility. And in case the petroleum right is revoked, a plan for cessation of petroleum activities and decommissioning shall be prepared and submitted as soon as practically possible.

Moreover, the plan must ensure that cessation and decommissioning is conducted in a manner which, when applied, would comply with standards and procedures generally recognised as prudent in the international petroleum industry, as well as the right holders’ standards for cessation and decommissioning. Decommissioning procedures may not be launched before obtaining the approval of the minister of energy of said plan (article 49 OPRL).

Upon abandonment or decommissioning or expiry of an EPA, the State is entitled to recover the ownership of the facility or the right to use it, including all its equipment, at zero cost, noting that such facility must be in good order (articles 47 and 48 OPRL).

The strict liability of the right holder and the owner of a facility, jointly and severally, is engaged for any direct loss or damage resulting from implementing an approved plan for the cessation of petroleum activities or decommissioning of facilities. Also, in case of facility abandonment, the right holder and the owner of the facility are jointly and severally liable for any damage or inconvenience caused wilfully or inadvertently in connection thereto. This liability may be taken over by the state, upon agreement between the concerned parties and the state, but subject to an agreed financial compensation to the latter.⁹

Footnotes:

⁹ Article 67 PAR

The council of ministers may grant licence to right holders to build and operate transportation or storage facilities as per the applicable laws, the EPA, and the approved development and production plan, if said plan included a plan for transportation or storage (article 31 OPRL). Right holders may also submit, separately, to the minister of energy with a copy to LPA, a plan for the building and operation of a transportation or storage facility. The council of ministers may then grant the licence according to said minister’s recommendation, upon LPA’s consultation.

Several criteria are set for granting such licence, including the ownership of the facility, the installation of the cables, pipelines’ route and destination, capacity of the facility, tariff, etc. Third parties (non right holders) may also be granted licences to build and operate submarine cables or pipelines in Lebanon’s EEZ, in accordance with above terms and applicable laws.

Right holders (or third parties) responsible for submarine cables or pipelines must conduct and present surveys on the pipelines’ routes and soil to the LPA and the competent authorities. Right holders are also required to include in their plan for building and operating transportation and storage facilities, inter alia, an environmental impact assessment study, details on the transportation or storage facilities, quality criteria adopted, quantities expected to be transported, ownership of the facilities, etc (article 54 PAR).

Moreover, if the construction and operation of facilities (including pipelines) require the utilization of a real estate property, the right holder may submit an application to the minister of energy that sets forth the reasons for the need of the utilization, in order to conduct petroleum activities. Said minister would then assess whether or not the real estate property’s utilization is possible, either by way of a direct agreement between the right holder and the property owner, or by way of State appropriation (compulsory acquisition), where possible.

Liquefied natural gas is included in the “petroleum” definition in article 1 OPRL, and as such, our answers provided herein apply to LNG and LNG facilities.

As to the LNG facilities in Lebanon, the State concluded to establish three FSRUs (Floating Storage Re-gasification Units), in three main power plants across the country (Selaata, Deir Ammar, and Zahrani). In May 2018, a bid had been launched for designing, financing the construction works, and operating the three FSRUs for duration of ten years, and eight companies/consortiums submitted offers. Ultimately, the consortium of QP (Qatar Petroleum) and the Italian energy company, Eni, won the tender for the FSRUs project. Nevertheless, the offer of QP/Eni has not yet been put to use due to ongoing political disagreement precluding the issuance of a decree by the Council of Ministers to initiate implementation. On another note, Lebanon had entered into an agreement in 2019 with Rosneft to upgrade and operate storage installations in Northern Lebanon.

Please see our answers to Q12 regarding the construction and operation of facilities (including storage facilities).

Natural gas transmission and distribution is not yet regulated.

According to article 39 OPRL, third parties may be granted the right to use spare capacity in a production, storage, or transportation facility. And according to article 56 PAR, third parties may be granted the right to use spare production capacity for one or more facility only if such use does not impact negatively the right holders’ petroleum activities who has the right to use such facility. This right is also granted if such use is useful from a technical, environmental and safety perspective, provided that (a) there is available production capacity and (b) no technical issues preclude such use of the facility. Negotiations in this regard must be conducted in a bona fide manner, and third party use is subject to the minister of energy’s approval based on the LPA’s recommendation. Moreover, if the available production capacity is not sufficient to benefit third parties, the minister of energy may decide that the right holder must increase the production capacity in accordance with reasonable commercial terms and certain conditions (article 57 PAR). If the parties involved cannot reach an access agreement, the matter is then settled by a committee of three experts appointed by the LPA (article 58 PAR).

As noted earlier, the country relies majorly on oil imports for its local energy requirements, as no production takes placed domestically just yet.

Nevertheless, competition has been recently regulated in Lebanon (Law no. 281 dated 15/3/2022 governs competition in Lebanon (the “Competition Law”)). Under the Competition Law, an authority called the “National Competition Authority” (NCA) shall be established, headquartered in Beirut, with a mission to monitor the process of free competition, support the competitive performance of the markets, and exercise the tasks and powers entrusted upon it by law. There is no provision in the Competition Law, however, specific to competition in the oil and gas sector.

Under the Competition Law, the prohibited agreements and practices are “any practices, alliances or horizontal agreements, express or implied, or actions orchestrated inside or outside Lebanese territory, that limit or prevent competition”. Moreover, the Competition Law prohibits anyone with a dominant position in the market, whether a natural or legal person or a group of persons, from misusing this position in a way that leads to prejudice, limitation or prevention of competition in Lebanon.

Under OPRL and PAR, there are no anti-competitive restrictions or requirements, per se.

Please see above answers, in particular the ones related to production, storage, transportation, and sale.

There have been no significant changes recently in the government policy and regulation in relation to the oil and gas industry. Nevertheless, the Sovereign Wealth Fund Law was recently passed at the Lebanese Parliament (14 December 2023). Article 3 OPRL stipulates that the revenues, collected by the State, that are generated by petroleum activities or arising from petroleum rights, must be deposited in a Sovereign Wealth Fund (SWF). The revenues must be invested and used on clear and transparent basis, whereby the State maintains the capital and part of the revenues in an investment fund for the future generations, while the remainder is used for development.

One of the main challenges faced recently by the oil and gas industry was the announcement made by TotalEnergies (operator of the consortium) regarding the negative preliminary results of Block 9 drilling operations, knowing that the State placed a big bet on that particular Block. Fears mounted that TotalEnergies (or other interested parties) eventually withdraws from Lebanon’s offshore. This fear was exacerbated by the Israel-Gaza war, which erupted on 7 October 2023, and the tension at the Lebanese southern border, as the current security situation would prevent and/or hinder any exploration activities.

It is still premature to discuss the impact of the energy transition on the oil and gas industry in Lebanon, as no production takes places till date. Similarly, decarbonisation is not yet regulated. Nevertheless, non-governmental organisations, such as LOGI (Lebanese Oil and Gas Initiative) is continuously advocating for the improvement of the oil and gas regulations, taking into account the energy transition, such as using natural gas in conjunction with renewable energy.

Nonetheless, Lebanon had pledged in 2009 to reduce fossil fuel consumption by reaching a 12% target of renewable energy by 2020. While this may have been out of reach, it is worth noting that private initiatives have been opting recently for solar energy. Private efforts are also backed by “LCEC” the Lebanese Center for Energy Conservation (a not-for-profit organization within the ministry of energy with a financially and administratively independent statute). Its aim is to support the development of renewable energy and energy efficiency in Lebanon. A first bid was launched for a wind farm in Northern Lebanon and the State ultimately signed three Power Purchase Agreements with three private companies for the construction of wind farms in the capacity of 226 MW. Also, in May 2023, the minister of energy signed contracts with 11 consortia, aiming to generate 165 megawatts of solar energy throughout the country. The minister announced that the “country’s goal for 2030 is to generate 3,000 megawatts of electricity through solar power and 1,000 megawatts through wind power”.