Fact Checking the Arab Media

The extreme move by the Russian company to give up on its exploration activities in Lebanon is due to the fact that it was having a hard time transferring funds to Lebanon because of American sanctions on most Russian companies following the Russian invasion of Ukraine. The decision immediately raised questions in Lebanon about the fate of oil and gas exploration in the country’s territorial waters and whether this withdrawal will hinder or delay exploration activities at a time when the American mediation led by the man in charge of the energy file, Amos Hochstein, is progressing with the aim of demarcating the maritime borders between Lebanon and Israel. There are no diplomatic relations between the two countries, but a stable and agreed-upon sea border would allow for private companies to drill in areas that are currently officially disputed.

The Lebanese Minister of Energy and Water, Dr. Walid Fayyad, quickly released a statement, carried by a number of Lebanese websites, that said Novatek's decision to withdraw from the tripartite consortium would “not affect” the exploration activities and that the French Total company and the Italian ENI company are still abiding by their signed agreements with Lebanon - something that both firms confirmed in their own letters.

Commenting on the news of Novatek’s withdrawal, expert on oil affairs Dr. Rabih Yaghi contradicted the Lebanese Energy Minister’s assertion of “no effect,” telling the leading Lebanese website Lebanon 24 that Lebanon “does not have a major margin of action in this case, especially as its direct relationship is actually with the French Total company, which is responsible for finding an alternative based on the contract, which stipulates that the consortium should include three companies. This will result in additional delays in the exploration process in Blocs number 9 or 4, or any oil-related activities in Lebanon.” Yaghi added that “finding an alternative will need time knowing that wasting more time will not serve our interests as we must start as soon as possible (…)”

Fact Check Assessment: True

In order to assess the Energy Minister’s assertion, we interviewed Engineer Wissam Shebat, a member of the Lebanese Petroleum Administration Authority, about this vital issue for the Lebanese economy. He explained that several points are crucial to grasp: First, according to law 132/2010, the Lebanese state must grant a petroleum license to an alliance of no less than three companies in order to explore blocs number 4 and 9. Second, technically speaking, one of these companies must serve as the operation of the consortium that reports to the Lebanese state and manages operations. This operator must possess some specific technical criteria as well as other criteria pertaining to general safety and security.

Based on these two points, Shebat says that “Novatek's withdrawal certainly violates the first point and makes the petroleum license illegal because the number of the companies is now below three. However, this doesn’t actually affect the work because the French Total and the Italian Eni have the necessary operational specifications.”

The contract, he explains further, actually includes a mechanism to deal with exactly this type of event, thus preventing any effects on energy-related activities. Indeed, the Lebanese State can take Novatek's twenty percent share, which means that the state will have some financial obligations regarding the cost of the work in the future, in terms of drilling, exploration and others.

According to Shebat, “there is (even) another solution where the Lebanese state can become a partner through a symbolic share not exceeding 0.01 percent while the Russian company’s share is given to Total and Eni if the two were to fail in finding a third partner quickly enough, thus preventing the freezing of the license. To take this decision, the Lebanese state does not need to revert to the council of ministers. The decision doesn’t aim at obtaining financial gains, but rather at having sufficient time to find a third partner, after which the Lebanese state shall withdraw."

Given these legal options, we assess that, contrary to Yaghi and others’ pessimism, the withdrawal of Novatek will not affect the exploration work of the companies, especially because the Lebanese state could easily become a partner with 0.01 percent of the shares well ahead of the exploration deadline of October 22, 2022. In other words, the statement of the Minister of Energy, Walid Fayyad, is true.

It is important to note that in 2018, Lebanon signed the first oil and gas exploration and production contract in Blocs 4 and 9 with a consortium that includes Total, Eni, and Novatek whereby Total and Eni obtained forty percent of the shares while Novatek got twenty percent. In 2020, exploration works were frozen as no major commercial quantities were found in Bloc number 4, which is located in front of the Kesrouan shores in Mount Lebanon, amidst an escalating border-related conflict with Israel around Bloc number 9, which is located at the borders of the Lebanese South, as well as Blocs number 8 and 10 where the oil reserves in the two countries’ economic regions intersect.