Tripoli 10 March: In the week that Libya’s National Oil Corporation (NOC) announced that oil production had reached 1.4 million b/d . . .[restrict]— just two million b/d short of its pre-17 February Revolution levels and in the record time of about four months since Libya declared its Liberation — the Libya Herald‘s Sami Zaptia was able to secure an extensive and exclusive interview with the NOC chairman, Dr Nuri Buruwin.
• I started by asking what had been the cause of the rapid increase in production.
“The spirit and the cause have been the reasons for this rapid increase. The Libyan workers had no reason for working before but now they have a free Libya and the benefit of its people. They have been working in the severest and harshest conditions and they have done an excellent job. Worldwide, many analysts were not expecting that we would reach these production levels. The workers have done an excellent job and I would like to take this opportunity to thank them again.
“These young people, had they not been in the oilfields, would have been fighting. It’s the same spirit. They know that they are doing it for the Libyan people. They are not doing it for Qaddafi or anybody else.”
• Libya consumes a certain percentage of its oil production and exports the rest. Another percentage of exports is also imported as finished goods to make up the gap between local production capacity and Libya’s actual consumption. It is the revenue accrued from the balance of those excess exports that give Libya its wealth and power. I asked the NOC chairman the rate of oil exports at present.
“All Libya’s local refineries are in operation except for Ras Lanuf. The refineries that are working are doing so at full capacity at the moment. Zawiya is refining about 120,000 b/d, Tobruk 20,000, Sarir 10,000 and Brega about 9,000 b/d – which totals about 160,000 for local refineries.
“About 9-10 percent of our oil production goes to our partners for their share. The rest is exported for the benefit of the NOC and the Libyan people.”
• During Libya’s popular revolution, the UN Security Council froze all the Libyan state’s overseas accounts, including those used by the NOC. I therefore enquired if the oil revenues currently coming into NOC accounts were post-17 February NOC accounts that the NOC had full access to and control of.
“The mechanism is like this. We receive the money within a month — plus or minus — after the cargo has been received by the buyer at the terminals. We receive the money in our accounts with the Libyan Foreign Bank. Then automatically within two days, it is transferred to the Central Bank of Libya. At NOC we have no access to that money. We receive our cash from the Finance Treasury Department just like any other sector. We have no control over the money.”
• I then raised an issue of great interest to the Libyan public with the NOC head. Many Libyans cannot understand how, on the one hand, they hear that oil production has reached 1.4 million b/d, with crude oil prices well over $ 100 a barrel. Yet on the other hand, there is no liquidity in the Libyan economy. The NTC and government have not released a detailed budget. I pressed Dr Buruwin about the speed of payment of NOC revenues and whether some of Libya’s oil money was being held abroad or if it were being used to pay allies who helped Libya in the Revolution, for example. Were there any problems with payment for oil to the NOC from foreign buyers?
“Libya is getting paid by the mechanism which I have explained,” he stressed. “We have no problems with collection of payment. If there is any delay in payment, we are paid penalties by the buyers.”
• Looking forward, I asked the NOC chairman what the projected rate of oil production would be in the coming months.
“We expect a big jump within 15 days or so and maybe by the middle of the March we will see a figure of 1.5 million b/d. Then, we will start increasing production little by little because we have some problems here and there and have some pipelines that need repairs. We are working on these. These pipelines account for either 30,000 b/d here or 40,000 b/d there. We are working to have everything in proper order.
“Waha [Oil Company] is coming up strong. They are very near their target. AGOCO have some technical problems that they are working on. Once they have solved those problems, we will see a big jump. And accordingly we will be ready to send crude to Ras Lanuf refinery from the Misla and Sarir fields. The problem is the big transformer. This was damaged by the Qaddafi forces during their first attack on Misla field. It is being installed by the company itself. No outside contractor is involved.”
• But what kind of production figures could Libya reach in the not so distant future?
“We can get 1.6 mbd by June. Our target this year is to go back to normalcy of 1.7 mbd plus by the end of the year, because these pipelines, we hope, will be finished by the end of the year. These production figures do not include condensates of about 60-70,000 b/d.”
• What is the new production target? What could the infrastructure handle and what is achievable? Is there a policy target?
“We expect next year there will be a jump in production because we have some development projects that stopped. They will be coming on one by one by 2013. This is because there are some prior commitments. For some of these projects we have already opened letters of credit and they are already being used.
“This production will help maintain the level of production as the Minister said; we are aiming to increase our production to two million barrels a day by 2014. I think this is easily achievable.”
• Is it a policy for Libya to continue to increase oil and gas production? Is there an optimum target? Is there a policy to preserve oil reserves?
“My personal opinion is that are we going to utilize and invest this money wisely. If we are going to invest the revenues from the oil correctly, then we go ahead and concentrate on getting it out – but if we are not ready, we just have to leave it a little bit until we are ready; otherwise we produce it and eat it and that’s not the right thing. If we are competent and capable of investing it better than just leaving it in the ground, then we should increase production.”
• Has this production rate of 1.4 m b/d been achieved purely with Libyan manpower?
“It started with 100-percent Libyan manpower maybe onshore. Start-up of production during the difficult times was done by a 100-percent Libyan workforce. Offshore, our partners helped us get the platforms back in production. But that does not contribute much to production. For oil that contributes about 80,000 b/d. The gas which is being exported to Europe has been produced with help from our partners. More than 90 percent has been done by a Libyan workforce. Onshore close to 100 percent of production is being achieved with a Libyan workforce.”
• Can Libyans continue to produce without the need for a big number of expats in the oil and gas sector?
“There are activities in which we will need the help of some foreign experts, especially in the area of gas and also probably the petrochemical side. But the percentage is not that great. Roughly speaking out of 45,000 there are only about 2,000 expats. The foreign workforce has been on the decline.”
“We are at the point now where we need the service companies in order to sustain production, and some of these drilling, servicing and work-over companies use expat labour. The majority of these servicing and work-over companies are Libyan companies using a Libyan workforce.
“During the liberation war, a lot of spare parts and equipment was damaged, destroyed, stolen or lost. It is very important now that once our budget is approved – which we expect to happen very soon — we start getting spare parts and key components so that we can sustain production such as in power plants, etc. Because there are critical elements of production that we need to make sure that we have the spare parts for — more than the workforce. That is what we are working on in the next phase.”
• Dr Mahmoud Jibril, the former prime minister, said that Libya had used about two-thirds of its proven oil reserves. Do you agree with that?
“Of the proven ultimate reserves, probably about two-thirds have been produced. But this reserve figure is a changing, dynamic one. Every year we have been adding more reserves than we produced. So if we carry a figure, that figure has been constant for a long time. Then we produced for years, yet the reserve figures stays constant. I will give you an example, ten years ago our reserves were a certain figure, and then we produced for 10 years and now the figures are much more than they were 10 years ago. These are the reserves.
“On the other hand, there is the matter of recovery. I respect Dr Jibril’s opinion, but there may be some details he is not aware of. Our ultimate recovery rate is very low. We carry about 33 percent. But because of the quality of our reserves, we could add more by implementing improved techniques such as better oil recovery, by good reservoir management, by enhanced oil recovery etc.
“For example, we could add from 5 to 10 percent. If we add 10 percent for example in the next few years, this means with the current levels there will be another 20 years of production.
“We are working on that. We are going to do it. Our young people are working on that and they are going to do it. We are going to increase production not just by exploration but also by developing the current reserves and these reserves and our large reservoirs are amenable to the applicable methods that have been used worldwide. Therefore our target is to increase reserves.”
• There has been much talk of corruption in Libyan government institutions and the post-17 February authorities have promised transparency in the Transitional Constitution. I asked the NOC head if there were transparency in the tender/procurement process of the NOC at present and what specific measures were being taken in order to improve transparency.
“What I see in the future — and not just in the oil sector — is that we must have the private sector very active; otherwise we are going to have a lot of problems. The government cannot do everything. We cannot employ everybody. We expect the private sector to be so big and important that it will take care of a big portion of the economy. We will encourage the private sector. One of the conditions that hopefully will be used is that companies that employ a larger Libyan element will have a privilege. Otherwise if it is companies using agencies, I don’t think this would be wise.
“We have been talking about how to improve transparency. For example, by giving the companies instructions on how to go about bidding. First, one of the things that some of the oil companies do is to announce the tenders on the internet, but they don’t give enough time for some companies to bid. So we are suggesting that they give at least 30 days so that you give a chance to everyone to participate. Also, they have to adapt the pre-qualification process. They have to encourage the private sector and I expect at least in projects that are not that sophisticated that more companies will participate.”
• A group of Libyan companies informed me that they were forming a Libyan procurement companies’ association in order to put pressure on the NOC to give more of its big orders to local companies. What is your comment on this?
“We welcome it but only as long as everything is done transparently and competitively. If they are competitive, then why not? It takes two to tango. I would advise the private sector to be transparent.”
12. The NGO, the Extractive Industries Transparency Initiative (EITI), participated in the Libya Transparency Roundtable in Tripoli in December, to which I was invited. EITI encourages this initiative, signed up to by the USA, whereby for better transparency, national oil corporations reveal their exploration and production contracts with their foreign partners. What is your comment on this?
“I talked to them and told them that usually you have some contracts that have some secret terms. But, if the second party or the other signatory would like to publish, we don’t mind. They should not, but they may have. If they don’t mind, we don’t mind.
“If you go to our NOC website, every thing that we sell is published. In terms of the type of crude, the destination, the quantities and also the pricing. Anybody can sit down and with the Brent price and work out what we sold and at what price. This was never the case in the past.’
• Do you feel that it is right or fair that the NOC is given a role as a national employer and is expected to solve the Libyan government’s unemployment problems?
“The NOC advertises on our site asking for new graduates, targeting subjects relevant to our needs. We usually take about 1000 graduates every year. You know the quality of our education system is poor. Therefore, we try to do some upgrading. For one year we give them some subject and foundation programmes, and then at the end of the programme, they are assigned to different oil companies. They receive some payment during this programme.
“We have been doing this in the past and we will continue to do it. Our young people need work. This seems to be a popular place for people to want to work. Some of the companies to which we assigned some workers complain that they don’t have work for them. We are over-populated.
“Anyway, we are going ahead in the hope that in the future the activities of exploration and production will increase and therefore there will be room for everybody. We hope for the expansion of our downstream sector. Also as we said earlier, we hope the private sector will pick up very quickly in order to take up the slack.”