Among all the strife in Libya, potential or actual investors in the country’s oil and gas industry have another problem: a contract structure that is discouraging new investment. It was a key topic at a recent conference in Libya’s capital city, and Kate Dourian discussed it in the At the Wellhead column of Oilgram News.
Libya has opened its doors to welcome oil and gas partnerships, but the legacy of Qadhafi-era contracts remains a significant deterrent for major oil companies.
A recent conference in the Libyan capital Tripoli offered a glimpse of what the future of the North African state’s significant oil and gas resources may look like by identifying the delegates who risked traveling to the country, which still suffers in the wake of the revolution that ousted Moammar Qadhafi.
Absent from the two-day Libya Summit organized by CWC were some of the major oil companies that had concluded deals with the previous regime and now appear to be having second thoughts about the terms of contracts signed during the Qadhafi era.
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ExxonMobil opted to stay away from the event, perhaps deterred by the attack on the US consulate in the eastern city of Benghazi on September 11, which resulted in the death of US ambassador Chris Stevens and three other US citizens.
Perhaps, suggested one US oil executive, ExxonMobil is happy to let its agreement lapse because the terms of the so-called EPSA IV contracts are unattractive and many expect they will be revised. But even before the Benghazi attack, ExxonMobil maintained a force majeure on its exploration activity.
When Libya held a highly anticipated bidding round in 2004, shortly after the US and UN Security Council sanctions were lifted, the winners paid some of the biggest signature bonuses the industry had ever seen. Because Libya is relatively under-explored, dozens of companies were willing to pay the price for a slice of acreage in a country with the largest oil reserves in Africa. A few years later, as oil prices were rising, NOC began renegotiating contracts to bring them in line with the so-called EPSA IV model, which gave NOC a bigger share in the producing blocks.
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Now the same companies that rushed in and accepted those terms for exploration contracts appear to be having second thoughts.
Shell was the first to announce its plans to quit, withdrawing before lifting the force majeure that it and other foreign operators declared shortly after the start of the civil war, when they evacuated staff and shut down oil production. Oil output has now been restored to nearly pre-crisis levels, which officials said was running at an average 1.6 million b/d currently, though gas output is still below normal.
Shell said in May that it had opted to halt exploration at its existing license areas, but is looking at new upstream opportunities, a position that was reiterated by the sole Shell representative present at the conference.
Also relinquishing their exploration blocks in Libya are Japan Petroleum Exploration, or Japex, though the company says it is still interested in other upstream opportunities in the country. Another Japanese player, JX Nippon Oil and Gas, formerly Nippon Oil Exploration, is in the process of closing its operations after an agreement with NOC with JX and partners Mitsubishi and Nippon expired in December 2010.
While ConocoPhillips was the only US company to have sent representatives, its partners in the Waha Group, formerly the Oasis Group, Hess and Marathon, were absent. Production from the Waha oil fields has been restored to near full capacity at around 320,000 b/d but it is still not clear whether NOC’s foreign partners have lifted their force majeure.
Even BP, which lifted its force majeure in June this year and announced plans to resume exploration by late 2013, was not represented—although it did host a gala dinner in absentia. BP, whose contract was worth at least $900 million, was on the verge of drilling its first offshore exploration well when the uprising began.
Among the other majors, Total was strongly represented as were Statoil and Eni, the biggest producers of oil and gas in Libya. Germany’s Wintershall, one of the oldest producers in Libya, had a representative as did Austrian OMV.
It is still unclear how the new administration will tackle the production-sharing contracts, whether EPSA IV will be revised or if the relinquished blocks offered at a later date. That is being left to a permanent government due to be formed next year after an interim administration.
Waiting on the sidelines are a clutch of small independents such as the UK’s Heritage and UAE-based private oil and gas player Crescent Petroleum as well as Abu Dhabi’s Mubadala, all of which sent speakers to the conference. All have in common operations in Iraqi Kurdistan, where they fear being squeezed out by the oil majors now moving in. The three companies are now exploring the possibility of filling the gap left by the likes of Shell in Libya.
–Kate Dourian in Dubai