Novatek to withdraw from projects on the Lebanese shelf

“Novatekintends to withdraw from exploration projects on hydrocarbon blocks 4 and 9 on the Lebanese shelf, said Minister of Energy and Water Resources of the interim government of the country, Walid Fayyad, quoted by the Lebanese National News Agency.

As the minister noted, Novatek’s subsidiary Novatek Lebanon SAL informed the country’s authorities of its intention to withdraw from the projects after the completion of the first exploration period, that is, until October 22, 2022. “Novatek» owns 20% each in blocks 4 and 9 in the Mediterranean. The consortium, he said, will continue to work on the blocks with the two remaining participants – the French TotalEnergies and the Italian Eni.

Novatek’s press service declined to comment, TotalEnergies and Eni did not respond to Vedomosti’s requests at the time of publication.

In December 2017Novatek» together with TotalEnergies (at that time – Total) and Eni became the winners of the licensing round for offshore blocks 4 and 9 in Lebanon. In February 2018, the companies signed agreements with the Lebanese government on the exploration and production of hydrocarbons in blocks. The share of Novatek in the agreements is 20%, the shares of TotalEnergies and Eni are 40% each, the project operator is a French company.

The terms of the agreement provide for geological exploration for five years with a possible extension for the same period, and in the event of the discovery of commercial hydrocarbon reserves, the consortium’s exclusive right to develop them for 25 years with a possible extension for another five years.

The Lebanese media estimated the consortium’s investment in exploration at $240 million. In January 2018, Novatek’s deputy chairman Mark Gytway said that the company could invest about 40 million euros in the project.

Exploration drilling at Block 4 began in 2020. In September 2020, Nikolai Vovk, head of the offshore drilling department of the Novatek Well Technologies and Supervising Department, said that in February-March the consortium drilled a well with a depth of 4190 m. The consortium did not report on the drilling results . In November 2021, Russian Foreign Minister Sergei Lavrov, following negotiations with the Lebanese Foreign Minister, stated that “Novatek» plans to drill another well offshore this country in early 2022.

As Vedomosti wrote, the interest of oil and gas companies in the Lebanese shelf is due to the fact that the gas reserves of the Levantine Basin located in the eastern Mediterranean Sea, according to expert estimates, can be up to 3.5 trillion cubic meters. m (see issue dated February 11, 2018). In 2009–2010 on the territory of the basin, the Tamar fields (reserves – 300 billion cubic meters) and the giant Leviathan, whose resources are estimated at 620 billion cubic meters, were discovered. m. Israel is developing these two deposits. The potential reserves of the Lebanese shelf can be up to 700 billion cubic meters. m.

At the same time, block 9 is located in the disputed zone of the Lebanese shelf, which Israel also claims. TotalEnergies has previously stated that “the consortium is aware of the Israeli-Lebanese territorial dispute over block 9.” Exploration wells on this project will not touch the disputed territory, the company specified.

Analysts interviewed by Vedomosti believe that “Novatek“may abandon assets in Lebanon both for political reasons and because of the futility of working on these blocks. Alexander Frolov, deputy general director of the National Energy Institute, believes that the company most likely has not found commercially attractive hydrocarbon resources on the Lebanese shelf. “This is not the first time that our companies have been exploring in other countries and, despite the theoretical attractiveness of the asset, on closer examination it demonstrates its complete commercial futility,” he added. The expert also admitted the influence of political factors.

Igor Yushkov, a leading analyst at the National Energy Security Fund, suggested that the exit of the Russian company from assets in Lebanon may be due to Novatek’s desire to “maintain good relations with Western partner companies.” He admitted that they themselves could ask Novatek to withdraw from the project, because for them now “such cooperation is uncomfortable.”

Yushkov added that the Lebanese project was initially quite risky due to the territorial disputes between Lebanon and Israel, as well as the ambiguous prospects for the shelf. According to the analyst, Novatek needed this project “rather for the image, in order to position itself as an international corporation.”

Now the company’s task has changed – the company needs to attract as little attention as possible to itself, Yushkov believes. The main shareholder of Novatek, Leonid Mikhelson, fell under the sanctions of Great Britain and Canada in April 2022 against the backdrop of tougher sanctions pressure on Russia due to the NWO in Ukraine.

Senior analyst “Alfa bank” Nikita Blokhin recalled that earlier “Novatekannounced the consolidation of the assets of Terneftegaz. Novatek acquired 49% in this company from TotalEnergies, which also owns 40% in the Lebanese asset. The expert does not rule out that Novatek’s possible withdrawal from exploration assets on the Lebanese shelf may be part of an asset swap deal between the two companies.

Novatek has another parity project with Eni abroad – on the Montenegrin shelf. In 2016, the companies signed a concession agreement with the government of the country for the exploration and production of hydrocarbons in four offshore areas. The project operator is Eni.

Frolov notes that the termination of the company’s work on one foreign asset “does not negate its activities in other foreign projects.”