By Ibrahim A. El Mayet Tripoli, 29 May:
In a statement on Monday Royal Dutch Shell announced it will cease exploration activities . . .[restrict]and abandon drilled wells in Libya citing harsh contracts and current insecurity as major factors in the decision. Like many International oil companies (IOC’s) Shell have had disappointing results from exploration of their Libyan concessions in recent years and consider further exploration to be economically unsound.
The move does not represent a departure from Libya; the company will maintain its representative office in Tripoli and continue to engage with the Libyan authorities and the National Oil Company (NOC) to look at future opportunities.
IOC’s operating in Libya do so through Joint Ventures with the Libyan NOC subject to an Exploration and Production Sharing Agreement (EPSA). From 2003 onwards, the NOC began to transfer all contracts signed with international oil companies (IOCs) to the stringent EPSA IV model, which reduced IOC profit shares in return for extending the period of their licenses.
While many in Libya’s oil industry consider the terms of the EPSA IV contracts to be favorable and transparent they are amongst the toughest in the industry. The infamous EPSA IV agreements are not popular with IOC’s causing a number of them to pull out of the Libyan market in during the latter years of the Gaddafi regime.
Hopes that the Libyan revolution would lead to more preferable terms of engagement for IOC’s have not been answered by the current interim government who are in favor of maintaining the terms of the EPSA IV agreements. These issues will have to be addressed by the new government which will be formed after the elections currently scheduled for 19th June.
While Libya is keen to protect it sovereign assets, Libya’s oil industry depends on the engagement of IOC’s. Following Shells decision, Germany’s Wintershall the second largest IOC in Libya (accounting for nearly 6% of Libyan output) has issued a warning that the current terms could impact on decisions regarding future investment in Libya.
Libya faces many challenges in maintaining production at mature fields, while finding and developing new oil fields. Most of Libya remains unexplored as a result of past sanctions and disagreements with foreign oil companies.
While Libya with the largest oil reserves in Africa and the eight largest in the world is attractive due to its low cost of oil recovery, high oil quality, and proximity to European markets the message from key players in the International industry is: Not on current terms!