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An overview of the Libyan oil and gas regime (article 1 of 3)
Libyan oil reserves, estimated at 47.1 billion barrels, are the largest in Africa and among the largest in the World. A large part of these oil reserves lies in fields that have remained underexplored in recent years. There is also the possibility that new fields will be discovered and technological advances mean that enhanced oil recovery could increase production from existing fields.
As Libya recovers from the conflict in 2011, International Oil Companies (IOCs) are gradually lifting their force majeure and resuming operations in the country. At present, the oil and gas framework remains unchanged from what was in force under the old regime. However, there are indications that the current legal framework is likely to change when the transitional process comes to an end following the expected enactment of the new constitution in 2013.
This is the first of three articles published by Clyde & Co, each of which examines different aspects of the legal and regulatory framework affecting the oil and gas industry in Libya.
This first article will set out the current legal framework governing the oil and gas industry in Libya. It will briefly outline the historical development of the oil and gas industry and go on to provide an analysis of the various laws and regulations in existence and the various governmental bodies. Finally it will analyse which parts of this framework are most likely to be amended in the future.
Petroleum Law No 25 of 1955
Libyas key petroleum legislation is the Petroleum Law No. 25 of 1955 (the Petroleum Law), which came into force the same year that saw the first Libyan concessions awarded. It was seen as one of the more sophisticated oil laws in existence, offering smaller concession areas and including relinquishment requirements. By 1968, 137 concession agreements were in place with over 40 different companies. Over the following decades the Petroleum Law has been amended by various regulations, negotiations and new versions of model contracts.
After the enactment of the Petroleum Law, the Libyan government conducted numerous renegotiations of concessions previously offered under the original Petroleum Law and managed to impose tough fiscal terms on IOCs, using favourable market conditions to its advantage. By the 1970s the Libyan Government began to demand higher shares of petroleum revenue and exercised greater control over the industry. This led to a series of various degrees of nationalisations of oil assets. In 1972, participation agreements replaced the concessions, transferring 51% of all concessions to the Libyan National Oil Company (NOC). During 19711973 BP, Occidental and Hunts Libyan assets were fully nationalised.
In 1973 the Libyan Government introduced Exploration and Production Sharing Contracts (EPSA). EPSAs are subject to the principles set out in the Petroleum Law (as amended by subsequent amending acts and regulations).
Under an EPSA, the Libyan Government, through the NOC, retains exclusive ownership of oil fields while signatory oil companies are considered contractors. Numerous versions of the EPSA have since been released. The last EPSA round under the old regime was held in 2005 on an arguably more attractive version of the EPSA, EPSAIV, as a postsanctions initiative to invite the much needed foreign investment to the countrys oil and gas sector. The key difference between various versions of EPSA relates to the scope of obligations of the Government and the IOC with respect to the recovery of development and production costs. In addition, EPSAIV contracts were awarded on a competitivebidding basis rather than the negotiated method used in the previous rounds.
EPSAIV created tough terms for oil companies, who agreed to low profit shares and the handing over of large signature bonuses in return for licenses in order to win the concessions. Whilst being criticised for their lack of transparency, EPSAIV contracts remain in force under the General National Congress (GNC), although it was reported that the GNC was to subject them to a corruption review process.
Under the EPSA IV, an IOC or a consortium of IOCs commonly enter into a joint venture with the NOC. The IOC or consortium undertakes exploration work and bears the costs for a minimum of 5 years, while the NOC retains exclusive ownership. The joint venture company management is assigned to a committee comprising of two NOC representatives and one IOC, with decisions being made by unanimous vote.
Over the course of 2008, a number of IOCs had the terms of their Exploration and Production contracts with the NOC renegotiated outside of the bidding rounds, to bring them into line with the new EPSA IV framework.
Possibility of an EPSA V?
The EPSAIV contract is seen as having particularly tough commercial terms relative to the global oil industry and IOCs have been keen to express their desire for a new version of the EPSA offering more attractive terms (In 2012, Royal Dutch Shell ceased exploration under its Libyan licenses citing poor exploration results that could not be economically justified under the EPSAIV terms).
The National Transitional Council (NTC) (the predecessor to Libyas General National Congress) made suggestions in June 2012 that productionsharing agreements with IOCs would be offered on improved terms in order to encourage IOCs to invest more money in exploration and enhanced oil recovery. In late 2012, NOC officials were reported as stating that there were plans to make Libya a more attractive upstream destination by offering more favourable contract terms.
NOC officials previously indicated that Libya would not announce new bidding rounds until a permanent fully sovereign Government was elected following the enactment of the new Constitution. Such elections are currently estimated to take place in July 2013. In March 2013 however, the Libyan Minister of Oil and Gas, Abdelbari alArussi, announced that Libya plans to invite bids from foreign companies for oil concessions by the end of the year. The Minister also announced Libya's intentions to request an increase in oil production from OPEC from 1.5m b/d to 1.7m b/d.
The NOC of Libya is a stateowned company that is responsible for implementing EPSAIVs and controlling Libyas oil and gas production. The NOC was established in 1970 replacing the Libyan Petroleum Company and oversees all petroleum activities in Libya including oil and gas exploration, drilling and production, refineries operation, petrochemical production, marketing and distribution of petroleum products and petrochemicals. The NOCs main upstream subsidiaries are:
The main downstream subsidiaries are:
The Future of the NOC
The role of the NOC going forward is unclear. It is unlikely that there will be any significant changes to the oil and gas sector prior to the establishment of a permanent government and the enactment of the new constitution.
Also unclear is the new structure of the NOC. The creation of the Ministry of Oil by the NTC indicates that some of the NOCs power will be redistributed to the new Ministry. Prior to the 2011 conflict, control over oil and gas was heavily centralised in Tripoli. It seems likely that power will be somewhat decentralised in order to reflect the geographical distribution of oil and gas reserves and allow greater autonomy for the oilrich region of Cyrenaica in the East of Libya. Certainly the Eastern Regions arguments for federal rule have been driven by the longstanding complaint that it has been deprived of a fair share of oil wealth. Given Benghazis importance in relation to the oil sector, it is likely to become a new economic hub in Libya and will want its own policy making role.
If you would like further information concerning item covered in this article please contact George Booth.
The authors acknowledge the contribution of Russell Banfi.