On Thursday, Lebanon announced the names of the oil companies that passed the pre-qualification round for licenses to operate 10 offshore blocks. What is remarkable about the results, announced by Lebanese Minister of Energy and Water Gebran Bassil at a press conference held in the headquarters of the Petroleum Administration in downtown Beirut, is the sheer number of companies interested in exploration in Lebanese waters, and their size and geographical diversity – compared to the handful of companies operating in both Israel and Cyprus, where discoveries were made years ago. The companies that qualified in Lebanon included U.S. companies Anadarko, Chevron, and Exxon Mobil; Italian company Eni; Japanese company Inpex; Danish company Maersk; Brazilian company Petrobras; Malaysian company Petronas; Spanish company Repsol; Dutch company Shell; Norwegian company Statoil; and French company Total. There are 34 other companies, including Arab, Russian, and British companies that qualified as potential non-operators, which would aid operators in financing and marketing. Naturally, it will not be possible to learn the size of oil and gas fields in Lebanese waters before companies start drilling. According to the official timetable, the final signature with the companies will not take place before the first quarter of 2014, which, given that the seismic survey took place for most Lebanese waters, means that early exploration might take place in 2015. This means, in turn, that we cannot expect the final results of drilling operations and determine the size of the fields in the event of discovery, and then commercial production, before 2018 - 2019. In spite of the chronic lack of stability in Lebanon, the Petroleum Administration was able to observe the deadlines in accordance with the laws and decrees in place. But Lebanese politicians are now required, like many other Arab politicians, to not ruin this golden opportunity to improve the Lebanese economy. Experience shows that Arab politicians have many methods to corrupt the economy, despite the skillfulness of Arab experts and technicians, and despite cooperation with foreign ones as well. Such corrupting practices include giving politicians petroleum-related licenses in their countries, or allow them to receive certain percentages of profits from the operating companies, or even obtain contracts for technical services for their own companies – in addition to many other practices which the Arab rulers imposed on the oil industry for additional revenues. In one Arab country with modest oil resources, the ruler wanted quick oil revenues. He ordered the foreign operator to rush production, but the company declined and warned the ruler that doing so at the beginning of production operations would harm the oil wells in the field, and lead to the loss of significant reserves. The ruler, however, insisted on his bid, and indeed, production rose from the field temporarily only to slump quickly after that. The field could only recover its planned productive capacity many years later. As usual, the issue was covered up under the pretext that secrecy was required in the rather strategic oil industry. Care must be taken to avoid the illusions being peddled, such as the claim that by producing oil, the country will automatically become wealthy. Indeed, the truth is that there have been Arab oil-producing countries and members of OPEC which still suffer from poverty, unemployment, and youth emigration, despite the existence of huge or reasonable oil reserves in them. The causes of the underdevelopment are many, and include chronic political chaos, mismanagement, and misallocation of oil revenues, for example by spending the majority of funds for the state budget on salaries, instead of investing them in infrastructure and meaningful projects. It should be made clear that the oil industry opens up important new economic horizons for the country. However, the oil sector relies primarily on capital and technology, and is not a major source of employment. The experiences of Arab oil counties shows that what matters ultimately, regardless of the size of oil revenues, is using the latter in a calculated manner. Experience also shows that one major risk related to oil revenues is exploiting them to implement the policies of an authoritarian ruler, or tempting adventuring individuals aspiring to take power and get rich quickly. To be sure, massive funds in the hands of a tyrant have led many countries to dismal conditions, to this day. The crisis brought about by oil revenues in many Arab countries is that they may grant rulers absolute powers. Many things became clear during the press conference held by Bassil. The ten blocks will cover all Lebanese territorial waters, from the north to the south. The Petroleum Administration is a technical organization operating according to Lebanese laws in force, and is therefore bound by the known Lebanese maritime borders which have been officially relayed to the Secretary-General of the United Nations. The main dispute that can arise in this case is block 8, which extends into the maritime zone disputed with Israel. However, this block is large, and companies are not obliged to drill in its entire area. The southern parts of this block can thus be avoided, or even the block itself. In this case, this will have no impact on exploration and drilling in the rest of the Lebanese offshore blocks, which cover a wide area. It is worth noting that a delegation from the U.S. State Department, headed by Ambassador Christopher Hoff, has been engaging both Lebanon and Israel to resolve the dispute. The delegation has submitted preliminary proposals to this end, but both sides have yet to approve them. The gist of these proposals is to grant Lebanon 530 square km from the total disputed area of 854 square km, and postpone resolving the dispute over the rest to a later time. It seems that there is a collective understanding on this matter in Lebanon. * Mr. Khadduri is a consultant for MEES Oil & Gas (MeesEnergy)
