By Niazi Kabalan, Pinsent Masons - Financial Times

After a three year hiatus, Lebanon has approved two crucial decrees required to relaunch the country’s first offshore energy licensing round. The Lebanese authorities are preparing a road map to resume a stalled plan to allow global oil companies to explore for hydrocarbons in the eastern Mediterranean country. The hotly anticipated licence round signals a new era for Lebanese oil and gas which has been thwarted by delays after a political stalemate put the brakes on a planned launch in 2013, despite the licensing round having attracted super majors and oil companies from around the globe.

While news of the refreshed tender process is turning the heads of the global oil industry, the mood music is one of cautious optimism as companies demand the promise of a stable and fiscally attractive petroleum regime before signing on the dotted line. Indeed, oil price fluctuations mean investment decisions are not made lightly; with new licensing rounds planned elsewhere in the region, such as in Cyprus, Oman, Iran and Iraq, Lebanon must act fast to compete for investment.

With offshore oil reserves estimated to be anywhere between 440m and 675m barrels, and possibly as much as 96tn cubic feet (tcf) of offshore natural gas reserves, potentially worth a combined $300bn-$600bn, Lebanon has a lot to offer global oil companies. Rival countries across the eastern Mediterranean have proved that this region offers lucrative oil and gas reserves making its complex and costly deep water geology well worth the investment.

Last year Italian oil major Eni announced record-breaking production rates at its Nooros field off the coast of Egypt just 13 months after its discovery. Together with the discovery of Eni’s “super-giant” Zohr field in Egypt, and Total’s announcement of nearby drilling off the coast of Cyprus, interest has been renewed in the eastern Mediterranean basin. This undoubtedly has reinvigorated Lebanon’s hopes of becoming an oil and gas producer.

But while Lebanon generally offers a favourable environment for foreign investors with appealing low corporation tax and investor-friendly business regulations, the regulatory landscape is not quite ready to open its doors to global oil players.

The crucial model petroleum contract and the licensing round tender protocol, which define the rules of play for operators, have just been finalised. But, the all-important hydrocarbons tax regime is yet to be unveiled. This is not finer detail that can be missed. Put simply, without a balanced petroleum tax regime, there will be no influx of global investment.

Compelling geology alone will simply not cut it. Oil and gas companies will need modern and attractive petroleum and fiscal regimes to ensure favourable returns for both the state and for the oil companies investing hundreds of millions of dollars to explore Lebanon’s offshore blocks. Lebanese authorities must act fast or risk losing momentum and the enthusiasm of international players. We can see progress with the country announcing it intends to take part in the Extractive Industries Transparency Initiative, a global standard.

Lebanon must take heed from the lessons learnt by competing jurisdictions. Drilling for oil and gas in the eastern Med has presented its fair share of challenges. Cyprus’ financial woes have stifled progress, now revived through its third licensing round launched in the summer of 2016.

In Egypt, oil companies suspended exploration and production while billions of dollars of delayed payments were recovered, leading to exploration dwindling. These issues, combined with competition concerns in Israel’s hydrocarbon sector, demonstrate some of the challenges the eastern Mediterranean has faced in developing its energy sector.

And while these issues have largely been ironed out, a lack of the infrastructure necessary for a thriving gas industry remains the long-term challenge for the eastern Mediterranean as a whole. As it stands, substantial investment is required to drill and transport gas on a commercial scale, prompting calls for countries across the region to pool resources and share the financial burden of developing suitable gas infrastructure.

Political differences have so far limited progress but ultimately such a move could prove essential if any one of these ambitious jurisdictions is going to realise the massive gas reserves to their full potential. This may be a long term goal, but Lebanon’s move to rejoin the race could be the catalyst needed to prompt the eastern Mediterranean states to consider the broader perspective needed to develop a thriving industry.

Lebanon embarks on this journey with some hurdles to overcome. But with the new tax regime slated to be unveiled in the coming weeks and interest from a number of oil majors pre-qualified following the country’s 2013 tender process, momentum and drive from the authorities could lead to speedy progress and the advance of a highly attractive and lucrative energy sector.

For those looking to invest in a frontier oil and gas region, Lebanon presents an exciting opportunity. From a regional perspective it represents a low security risk profile, combined with the promise of significant finds and a relatively easy to reach offshore environment. Lebanon will tick the boxes for many global oil players.

It has a golden opportunity to transform its nascent energy industry. Now is the time to seize it.

Niazi Kabalan is an energy senior associate specialising in emerging markets at Pinsent Masons, an international law firm