Establishing a National Oil Company in Lebanon

Countries which are exploring for or have discovered oil and gas are keen to increase national participation in their petroleum sectors and often see a national oil company (NOC) as a corporate vehicle for the defense of national interests in the upstream. Many of these emerging producers, including Lebanon, have expressed interest in guidelines on how to time the creation of an NOC and determining an optimal role for it. In Lebanon, there have been calls by politicians and commentators for the creation of an NOC. However, the Offshore Petroleum Resources Law (OPRL, article 6) clarifies a necessary threshold for creating an NOC: ‘When necessary and after promising commercial opportunities have been verified, the Council of Ministers may establish an NOC on the basis of a proposal by the Minister based upon the opinion of the Petroleum Administration.’ This reasonable threshold is clearly not met in Lebanon, as the country has not held its first licensing round. In the pre-discovery phase an NOC will therefore not be needed in Lebanon. It is useful nonetheless to examine the idea more closely and debate it, should it receive more serious consideration at a later stage. Key questions in this process are: When is the right time to create an NOC? What would Lebanon want an NOC to do? What would this role cost? What corporate governance mechanisms would an NOC need in order to perform effectively and avoid major pitfalls? What governance framework would keep it in check? Ultimately, if sufficient benefit to Lebanon cannot be established, the idea of creating an NOC should be questioned. The experience of other emerging producers can provide Lebanon with answers to some of these questions. Section 1 reviews common rationales for creating an NOC, contrasting the experience of established and emerging producers. Section 2 examines various types of NOCs and considers the potential benefits and risks of each model in the Lebanese context. The aim of this paper is not to recommend a specific model, nor to advise for or against the creation of an NOC in Lebanon, but rather to narrow down the available options taking into account the national context. Section 3 focuses on the governance framework that would be required to establish an NOC that is capable and accountable. The paper concludes with a review of the most appropriate NOC models for each stage of development of the petroleum sector.