Libya Offers Promising Blocks
Libya’s National Oil Corporation (NOC) is moving ahead with plans for the current round of Exploration and Production Sharing Agreements (EPSA III) and is aiming to conclude negotiations with at least one international oil company (IOC) by the year’s end, MEES Mediterranean Editor Eric Watkins reports from the SMi Libya 2000 Conference held on 16-17 October in Nice, France.
The conference was told of considerable interest on the part of IOCs in the new blocks put on offer earlier this year (MEES, 10 July and 8 May), particularly in the Sirte and Murzuk areas.
“There are indications of considerable potential in all the blocks on offer,” said Eugene Iwaniw, a senior petroleum geologist with Robertson Research International.
Dr Iwaniw’s positive opinion, based on a multi-client project to assess Libya’s potential which he heads, was shared by other speakers at the conference, including Robert Winsloe, Vice-President of IHS Energy Group, who provided a global view of Libya’s hydrocarbon potential as well as a profile of the fiscal terms and assumptions connected with the development of that potential (see Tables below).
Basin Potential In Libya
|Area available (sq km)||237||166||29||176||75||37||--|
|Number of blocks available||53||13||6||13||8||3||--|
|Average block size (sq km)||4.5||12.8||4.8||13.5||9.3||12.3||--|
|Number of exploration wells||1,732||71||356||83||34||20||--|
|Number of discoveries||267||18||87||17||3||0||--|
|Success ratio (percent)||15 percent||25 percent||24 percent||20 percent||9 percent||0 percent|
|Estimated production (mn b/d)||1,050||55||0||200||0||0||--|
|Discovered hydrocarbon potential (Boip*)||91||13||5||5||0||0||--|
|Estimated basin potential (Boip)||115||25||15||40||6||?||?|
|Yet to be discovered (Boip)||24||12||10||35||6||?||--|
|Percentage of basin on offer||50 percent||90 percent||60 percent||75 percent||99 percent||100 percent||100 percent|
|Basin potential on offer||12||11||6||26||6||?||?|
*Barrels of oil in place
Source: Robert Winsloe, Libyan Oil And Gas Fields: International Ranking Of Costs And Economics, London: IHS Energy, 2000.
Fiscal Terms And Assumptions
- State takes a 50 percent working interest upon commercial discovery and pays its full share of operating costs, but only 50 percent of development costs.
- No royalties and assumed no bonuses.
- Costs may be recovered as quickly as possible from the contractor’s share of production.
- Production remaining after state participation and contractor’s cost recovery is shared between the state and the contractor based on a sliding scale linked to average daily production and an R factor. R is the ratio of the contractor’s accumulated revenue to its accumulated costs.
The contractor’s profit share percentage is determined by multiplying the two indices together.
- Income tax paid by the state on the contractor’s behalf from its share of revenue at the special rate of 65 percent.
- No withholding tax payable.
- Ring fencing around the contract area for cost recovery purpose.
- Model contract has no provision for gas – IHS Energy Group’s assumptions based on amounts in oil contracts on an equivalence basis. State participation and profit sharing rates negotiable – indicative rates under EPSA III regime.
- NOC wants to encourage gasfield development.
A new clause in EPSA III gives NOC priority to purchase gas produced for local consumption. Gas to substitute domestic oil consumption of 185,000 b/d.
Source: IHS Energy
Production Index Revenue/Cost Index Production Index “R” Factor Index OIL GAS ‘000 b/d Mn cfd 0-10 0-60 0.95 <5 1.0 10-25 60-150 0.80 1.5-3.0 0.80 25-50 150-300 0.50 3.0-4.0 0.60 50-75 300-450 0.20 >4.0 0.40 >75 >450 0.10
The SMi Conference, even though not attended by NOC officials, is the latest in a number of recent efforts to promote investment in Libya following the suspension of UN sanctions in April 1999, the lifting of EU sanctions in September 1999 and the restoration of diplomatic ties with the UK in November 1999 (MEES, 29 November 1999).
These changes, though, only serve to emphasize that the US continues to impose unilateral sanctions against Libya. As US firms know, moreover, such unilaterally-imposed sanctions have closed off opportunities for them in Libya while opening up opportunities for competitors from other parts of the world.
While Libya seeks international investment, continuing US sanctions in effect force it to focus its efforts on Europe, including Russia and the former Eastern bloc, much to the chagrin of US firms (MEES, 14 February).
NOC is going ahead with negotiations, nevertheless, despite the changes in its leadership, first with Hamuda al-Aswad and more recently with 'Abd Allah al-Badri, who has been promoted to Deputy Prime Minister for Services.
It is now apparent that the government has provided a clear mandate, as well as a strategy, for NOC to proceed with the upstream negotiations, the target being to conclude talks with at least one IOC by the end of the year and to raise production capacity from 1.5mn b/d to 2.0mn b/d. The fact that the advanced negotiations are being held mainly with European firms adds to the uncertainty over prospects for US investments.
For its part, the US Government has allowed executives of oil companies with assets held in trust by Libya to visit the country to obtain information pertinent to their concessions (MEES, 4 October 1999), and US officials have since quietly expressed a desire to see an eventual normalization of relations between the two countries.
However, little real change in the situation is expected before a verdict is reached in the trial of two Libyans in connection with the Lockerbie bombing in 1988 and the awarding of compensation to the families of the victims.
Already in its 25th week, the trial was further delayed on 24 October when it was adjourned for a week to allow defense lawyers time to study new evidence.
Prosecutors received new information on 4 October from an unnamed foreign government and said on 10 October the information was highly relevant to the defense’s argument that Palestinian groups could have been behind the bombing.
The prosecution had waited two weeks while Scottish police tracked down six individuals, five of whom live in a European country and one in the US, before handing the new evidence to the defense on 24 October.
Even before the latest delay US authorities had expressed skepticism that a verdict would be reached before the spring of 2001, if then. Meanwhile US sanctions remain in place and could seriously affect the prospects of US firms wishing to enter or re-enter Libya, especially given the number of European firms now legally able – and eager – to do business with Tripoli.
Indeed, the EU shows no sign of slowing down its rapprochement with Libya, despite a French appeals court ruling on 23 October that Libyan leader Mu'ammar al-Qadhafi can be prosecuted for complicity in the 1989 bombing of a French DC-10 airliner over Niger in which 170 people were killed.
Six Libyans have been sentenced in absentia to life in jail for the bombing, and Libya last year agreed to pay $25mn in compensation to the victims’ families. The Libyan Government for its part plans to unveil a five-year investment plan and to outline opportunities for foreign investors in key sectors of the country’s economy at a conference to be addressed by senior Libyan officials next month in Tripoli.
© 2000 Mena Report (www.menareport.com)