Libyan upstream operators have used a special contractual clause to sell some crude directly to international oil firms in recent months, bypassing the central government to directly access oil revenues, sources told Argus.
Mellitah Oil & Gas, Akakus Oil, Zueitina Oil and Agoco sold crude worth more than $380mn between March and October, under this "proxy-payment" scheme, to Italy's Eni, Spain's Repsol, Austria's OMV and Libya's Arkenu Oil respectively, according to sources.
The mechanism is legal under a clause in production-sharing contracts dating back to the time of former leader Muammar Gaddafi, which allows operators to sell crude directly to cover special funding needs, sources said.
But sources and analysts say the mechanism is opaque, lacks checks and balances and could be exploited for personal gain. It also diverts oil revenues away from the central bank, the custodian of Libya's oil wealth.
"The proxy payments occur outside the framework of the ministry of finance and the central bank [and] are not recorded as official revenues or expenditures," said an official at the ministry of finance. "It is being used as an unlawful tool for controlling oil revenues."
NOC, Eni, Repsol and Arkenu have been contacted for comment. OMV declined to comment.
State-owned NOC, which has stakes in the upstream operators, normally sells its equity crude production to international buyers with proceeds flowing to a ministry of finance account at the central bank in Tripoli. International oil firms with stakes in the operators, including Eni, Repsol and OMV, are allocated equity crude and pay royalties and taxes to the Libyan state. The crude being sold under the proxy payment mechanism is from Libya's equity production, and is separate from the equity crude allocated to international oil firms.
The operators are usually reliant on the state to fund their operations. But Libya's political division, with rival governments in the east and west, has for years prevented a unified state budget, leaving operators with irregular and insufficient funding from the central government in Tripoli.
"The mechanism was never supposed to be used in this way," said a source with knowledge of the matter. "You can't confirm where this money is being spent."
"It's been heavily exploited now in the absence of a budget," said another source at a private Libyan oil firm.
Libya's fragmented political framework has allowed powerful groups varying levels of control over the economy, including in the upstream sector.
Enter Arkenu
The most high-profile example of this is services firm Arkenu Oil, which the UN has said is controlled by Saddam Haftar, a son of east-Libya militia leader Khalifa Haftar.
Arkenu has a contract with NOC subsidiary Agoco, operator of the Sarir and Mesla oil fields, to boost output in return for payments in crude.
Industry figures and analysts question the capacity of Arkenu to carry out such work and have said the company may be part of an illicit revenue generating scheme.
Arkenu has received crude valued at $200mn under the proxy payment mechanism, a source said. Libya's Tripoli-based government ordered a review of contracts related to Arkenu earlier this year, although analysts question the sincerity of the move.
Sources and analysts say the use of proxy payments mechanism could spiral and further drain state revenues. Libya produces about 1.4mn b/d of crude and makes most of its income from oil exports, which were worth $28.7bn in 2024, according to Opec's latest Annual Statistic Bulletin.
The heads of NOC, the central bank, audit bureau and the attorney general met in late November to discuss, among other issues, the proxy payment mechanism "and its implications for the state's general budget."
