THE Middle East and North Africa have been at the forefront of the news this year. They have always represented a significant political risk for the oil and gas industry, but amidst the political turmoil and the personal sacrifice, the industry continues to develop.
This month, I thought I would update you with development in three Middle East and North Africa (MENA) countries in which we are currently working.
In Libya, recognition of the National Transitional Council (NTC) as the legitimate government and the lifting of US sanctions on a number of Libyan oil entities on September 19, has allowed oil companies to begin to normalise their operations.
In the short term, the NTC is respecting contracts in order to allow production, and thus revenue, to resume. However, it seems likely that in the medium term there will be close scrutiny of the oil concessions granted by the Gaddafi regime, and that any deals might be reviewed and possibly referred to the court or international arbitration if the company concerned does not agree to negotiated amendments.
In any event, the ramping-up of oil production is likely to be a slow process – newly-developed fields such as the Murzuk and Pelagian basins will likely restart production sooner than the Sirte Basin, which accounted for the vast majority of production prior to the outbreak of unrest, as parts of this area remain under the control of Gaddafi loyalists.
In Iraq, the council of ministers has approved a new draft oil and gas law but this requires approval by the country’s parliament before it will come into force. However, this draft has yet to receive support from the Kurdistan bloc in parliament, an essential vote required for the intended law to be approved.
Meanwhile, the Kurdistan Regional Government continues to sign Production Sharing Contracts (PSCs) in its region, while the Iraqi Federal government considers these PSCs illegal and has blacklisted any companies that have entered into a PSC from participating in the Iraqi oil licensing rounds.
Iraq is also planning a fourth round of bidding for exploration rights which will introduce a slight variation on the payment mechanism used in earlier service contracts.
While the rate of remuneration will be increased, it will no longer be paid on “cost oil” – the amount of oil the service company is entitled to sell in order to cover its costs – the aim is to incentivise the successful bidders to minimise sub-contract costs.
Meanwhile, in Lebanon, final touches are being put to the new petroleum law.
Recent discoveries offshore Israel, including the massive Leviathan gas field, have ignited considerable interest in the potential of the Levant basin which the US Geographical Survey has estimated could contain more gas than Iraq possesses.
The new Hydrocarbon Law, passed in August 2010, created a production-sharing regime, but a series of government decrees, setting out the details of the bidding process and the contracts, are still being finalised.
The first bidding round is currently expected in the first half of 2012, but the legislative process in Lebanon is often subject to heated and lengthy debate between local political parties so it remains to be seen if the government, and the proposed new Petroleum Administration, will be able to hit this target.
Another factor which may disrupt the process is the risk of disputes with Israel over the delimitation of the maritime boundary. Israel and Lebanon have been in a state of war for over half a century and recent violent confrontations have heightened tensions.
While the disputed areas constitute only 2% of Lebanon’s exclusive economic zone, it may have a disproportionate impact on development of its hydrocarbons sector.
The one thing we can say with certainty about all three states is that the future is uncertain – but the opportunities are huge.
Penelope Warne is head of energy at international law firm CMS Cameron McKenna