- Libya’s next oil and gas licensing round to take place in Q1 2014.
- The country’s proven reserves have maintained competitive bidding rounds, but international oil companies desire better fiscal terms.
- Libya’s government is heavily dependent on its oil and gas industry, and may not able to improve financial terms for foreign players.
LONDON, UK (GlobalData), 28 June 2013 - On June 18th, Libya’s Minister for oil said that he expected the country’s next licensing round to take place in Q1 2014. Recent speculation has suggested that it may see an easing of fiscal terms as authorities try to attract new investment from International Oil Companies (IOCs) into the country’s oil and gas industry, but one GlobalData analyst warns that the nation’s government can ill-afford to be overly generous to foreign players. The business intelligence firm’s latest report* details the structure of the country’s Exploration and Production Sharing Agreements (EPSAs) and looks to their future.
Alongside the wider political transition in progress following the downfall of the Ghadaffi regime, a new oil and gas law is being drafted in preparation for the new bidding round, and the underwhelming outcome of exploration at the blocks licensed in the most recent rounds has set certain expectations for future fiscal terms. Many exploration blocks were relinquished having found no commercial resources and disappointment was compounded by the fact that contractual terms were tough.
“IOCs are likely to lobby for improvements to fiscal terms for the forthcoming licensing round, through measures to increase available rewards and to get a better acreage,” says Rabie Khellafi, GlobalData’s lead analyst for the MENA region, noting the recent visits to the country by senior delegations from Total S.A. and BP Plc. “Limitations on the initial share of production due to the NOC would increase the levels of production from which IOCs can recover costs and earn profit.”
However, despite the lack of recent substantial discoveries, the persistent attractiveness of Libya’s resources combined with the nation’s dependence on hydrocarbon revenues may thwart any attempts to win big concessions from the government. The country’s geological basins are proven producers of both oil and gas and the sector accounts for 65% of Libya’s GDP and 96% of the country’s government revenue – which includes the funds needed to rebuild the war-torn country and pay the ballooning government payrolls to increasing numbers of militiamen.
“One reason why recent fiscal terms were so tough, is the competitiveness of the bidding after two decades of underexploration of a country with a proven potential,” notes Khellafi. “The rapid return of IOCs to the country following Ghadaffi’s downfall shows that the country is still important and that the oil and gas potential outweighs security considerations.”
Changes to existing contracts have been ruled out, but the Ministry has said that it is discussing with existing license holders how future contracts can be improved. Mr Khellafi concludes that it is unlikely that legislators will move to significantly cut government revenue from the oil and gas industry in the current climate, particularly given their status as recently elected representatives in a region where populations tend to support domestic control of resources.
The new licensing round has already been delayed from 2013 to 2014, and given the complex and uncertain nature of current Libyan politics, it could be delayed yet further, depending on the progress of related legislation through the General National Congress which just elected a new chairman.
*Libya Upstream Fiscal and Regulatory Report
