Revising terms for a major upstream gas deal has spurred a wider push for contractual changes, writes Aydin Calik
For over a decade the chief obstacle to foreign investment in Libya's upstream has been political instability. But now, with relative calm taking hold, another challenge has emerged — fiscal terms.
Libya has marked its biggest upstream deal since 2011's revolution overthrew Muammar Gadaffi by signing an $8bn offshore gas deal — Structures A&E — with Italy's Eni, which promises to unlock 760mn ft³/d of gas and 47,000 b/d of liquids at capacity. To push that deal over the line, the Tripoli-based Libyan government agreed to bump up Eni's cost recovery share from the project by 7-9pc to 37-39pc.
To Libya's oil minister, Mohamed M. Oun, that decision by the prime minister has opened a Pandora's box. "The door was opened with the Structures A&E deal, which handed Eni better terms. Now, Total and ConocoPhillips also want to renegotiate terms," Oun tells Argus in an exclusive interview.
TotalEnergies and US firm ConocoPhillips own stakes in the 300,000 b/d Waha Oil consortium, which wants to double its capacity. Total entered Waha by buying US firm Marathon's 16.33pc stake in 2018, increasing this through its joint purchase with ConocoPhillips of Hess' 8.16pc stake in 2021. Both deals received pushback from key powerbrokers in Libya, including Ooun, who argued that Tripoli should purchase the stakes instead. The deals eventually went through — with the proviso that the companies invest billions of dollars in boosting Waha's capacity.
Two key Waha projects, the 100,000 b/d North Gialo and 80,000 b/d NC-98 block in the Sirte basin, are central to state-run NOC's $16.9bn plan to boost crude capacity to 2mn b/d from 1.2mn b/d within five years. Total and ConocoPhillips have sent an official letter to the government requesting better terms, Oun says. But the government and NOC say they must stick to the original terms.
Libyan officials think both companies are happy enough to let their concessions tick along with minimal operating expenditure. Their 20.41pc stakes in Waha netted them 47,000 b/d of crude and 29mn ft³/d of gas each in the first quarter. "Total's entry was supposed to add value. Five years have passed now, and we don't know when we can reach an agreement with them and ConocoPhillips to develop North Gialo and NC-98 and other small structures," Oun says.
Terms of endearment
Libya has a "very low cost of supply, but they've got to change the fiscal terms," ConocoPhillips chief executive Ryan Lance said at a recent investor day. "The gross margin contract that was the kind of contract that re-entry was based on back in the Gadaffi era is not one that's going to incentivise a lot of investment." Oun sees little prospect of the projects being approved any time soon. "Changing the terms will not be easy," he warns. But pressure to do so is likely to throw up similar obstacles: "I'm 100pc sure that others will want to renegotiate too — Repsol, Wintershall Dea and perhaps OMV."
Better terms for more investment might not be a bad idea. The question is how much Libya is prepared to offer to gain a competitive advantage in an era of constrained spending. Tripoli needs to attract cash and international expertise before the opportunity to exploit the full potential of its resources disappears.
NOC wants to hold an oil and gas licensing round next year — the country's first since 2007 — but has yet to clarify whether it will be made up of new acreage or include some existing discoveries, or whether it will adjust upstream terms in either case. Libya's current contractual model for new awards — Exploration and Production Sharing Agreement 4 — is recognised by both Libyan officials and IOCs as in need of a serious update. But pushing through such significant legislation in Libya's highly contested political environment will be a tall order.
