Libya: Getting To Know You Time
Ever since it became clear that Muammar Gaddafi's Libyan Arab Republic was heading into its final days during the summer of last year, much speculation has occurred about which western countries and firms will benefit the most from trade and investment in the country under a new administration. High in the minds of those who seek to profit from a new Libya is the fact that the country has Africa's largest proven reserves of sweet oil (some 40 billion barrels).
Many Western (and particularly European) oil companies had, of course, already been in the country for decades and they were prepared to lend technical support to Libya's oil industry in return for rights to explore for, produce and export oil, despite the country's unsavory regime. But after British Prime Minister David Cameron and French President Nicolas Sarkozy, among other European leaders, decided to lend direct support to the recent Libyan revolution, there is a view that Libya will look favorably upon businessmen from those countries that helped the country get rid of Gaddafi.
Indeed, UK Defence Secretary Philip Hammond appeared to jump the gun somewhat last October, when he urged British businessmen to shoot off to Libya and strike deals in the country.
"Libya is a relatively wealthy country with oil reserves, and I expect there will be opportunities for British and other companies to get involved in the reconstruction of Libya," Hammond told the British Broadcasting Corporation in an interview last October. "I would expect British companies, even British sales directors, to be packing their suitcases and looking to get out to Libya and take part in the reconstruction of that country as soon as they can."
Hammond's sense of urgency was not something that Robin Lamb, director general of the Libyan British Business Council, shared at the time, he told Rigzone recently. This was not least because, although Libya has seen many improvements during the past few months, the country is still some way from being stable enough for UK companies, and other western businesses, to relocate expatriate staff to.
"The fact of the matter is that, in many ways, Libya is almost like Ancient Greece with city states at the moment," Lamb said, explaining that individual cities that have their own interests at heart want to make sure those interests are preserved in a newly centralized state. "They are represented not least by the militias that were formed during the fighting out of the population of individual cities. Those militias are not being disbanded because of the state not being in a position yet to replace them or to find alternative employment for them."
This makes for a fluid situation in the country at the moment.
"We've still got four months till June (when the first national election will take place]," Lamb said. "When you've got the state dominated, or the security dominated, by militias – and particularly when the militias are located not in their own town, and when they are answering to their own commanders and not to a superior command – you then get friction and clashes at the interface between the areas that they control. Plus, of course, the people who've come in from another town, although they were liberators originally, the inhabitants now regard them as a bit of a pest."
"So this is all a bit uncertain and I suspect that some Western oil companies are hesitating about putting international staff back into the country until they are sure that there is national security and that their duty of care is satisfied. They may set the bar fairly high and I suspect it is in their best interests to do so."
Certainly BP has not yet restarted its operations in Libya. The UK oil major signed a deal with Libya's National Oil Company in 2007, when it committed to spend at least $900 million on exploration in the country. Back then, the firm planned to drill a total of 17 exploration wells, after acquiring 2D and 3D seismic data in the onshore Ghadames and offshore Sirt basins.
"We've done seismic in both areas and we had a rig lined up for the offshore work that was actually still sitting in U.S. waters this time last year, so obviously [once the revolution began] we didn't bring that over to Libya," a BP spokesman told Rigzone. "Onshore, we had a rig in place to start working at the same time and that work was suspended as well. So, we haven't actually drilled a well yet."
"Since this time last year we've brought expats out of the country. We still have about 90-something local staff employed, although they haven't actually been doing anything during all the troubles. But, they are still on our books. We're still in touch with them."
BP's spokesman said that in recent weeks the company has been looking at getting ready to restart its operations in the country. However, he pointed out, the situation on the ground is not yet stable as far as the company is concerned.
"The security situation just isn't adequate," he said. "It's not safe enough to start putting people back to work."
In contrast to BP holding back from putting its people back into Libya, Italian oil major Eni – which has been active in the country since 1959 – has been focusing on getting oil production back up to pre-revolution levels. In August 2011, Eni and the National Transitional Council (the Libyan group that was last year recognized by several western countries including Italy as the sole representative of the Libyan people) agreed to commit to creating the right conditions for a rapid and complete recovery of Eni's activities in Libya.
Earlier this month, on Feb. 15, 2012, Eni reported that it had seen a hefty fall last year as a result of disruption caused by the revolution in Libya. Average production for the company was down 12.9 percent for the whole of 2011.
But the firm also said it made an "extraordinary effort" during the last part of 2011 to restart production and reopen Libya's GreenStream pipeline, which enabled it to bring back online an average Libyan output of 160,000 barrels of oil equivalent per day (boepd) in the final quarter of the year compared with 50,000 boepd during the previous quarter. Eighty percent of Eni's Libyan output is now online, it added.
While the LBBC's Lamb suspects there are other companies like BP still waiting in the wings, he sees Eni's drive to improve its oil production as a special case.
"Italy has depended quite heavily on Libyan oil and gas. I think something like 13 percent of Italy's gas comes from Libya, and that was lost during the fighting period," he said. "So, Eni might have sent in staff because their need was more immediate than IOCs, who are the new explorers and developers looking to increase Libya's oil capacity and production. So that may be the difference."
The LBBC's Lamb said that he is now looking forward to June, when the first national election will take place.
"After June, although it will only be a temporary government while a new constitution is being built, at least it will be a government derived from an electoral process. Because, at the moment, essentially you've got a self-appointed government," he said, although the NTC has done "a very good job" in holding together the revolution during the fighting period and then restoring normal services to many parts of the country.
So what does that mean for foreign companies, and international oil companies in particular, who cannot wait to do business in the country and secure potentially lucrative new contracts?
"Well I think it is premature," Lamb said. "And it's premature from the government's point of view as well. On the one hand, it's stability and on the other hand you've got a question mark on the part of the people in current authority on how much of a mandate they really have to make big decisions, particularly big spending decisions involving contracts."
Lamb explained further: "If you know that you are a temporary minister and you are taking over from 42 years when everybody has developed huge suspicion of government and corruption… and you know that you will be replaced by a more permanent government that is elected, you are going to be more cautious about making decisions that involve large sums of money. So, I don't think that we're going to see many major contracts before June."
In spite of this, after a "reconnaissance" visit to Libya in mid-January, conducted with LBBC Deputy Chairman Oliver Miles, Lamb is now planning to go back to the country in April with a delegation of the LBBC's members – who include oil majors BP and Shell, as well as smaller oil sector-focused companies such as Oil Services International (UK).
"What we are saying to our members is that the reason we are going back in April (we're not waiting till June) is that it is still a transitional phase but in the long term, of course, Libya is in a very strong position to make itself a strong economy and to offer lots of good, strong business prospects," said Lamb.
"It does have the oil resources. It does have a massive sovereign wealth fund to invest. The Libyan Investment Authority's internal infrastructure fund is $20 billion and you've got an economy there where the people who conducted the revolution were partly motivated by political reasons and repression but also partly by economic reasons. It is an economy which should look like a modest Gulf state and doesn't. As far as they are concerned, they're not just looking to reconstruct, they want to undertake all the development that should have been taking place for the last 40 years and hasn't. They want to develop their state."
A similar business delegation from France arrived in Libya earlier this month. This was a 140-strong team of French businessmen and women led by the French-Libyan Business Council and the Franco-Libyan Chamber of Commerce.
Meanwhile, it is not just business delegations from countries that supported the Libyan revolution from the start that are sounding out the country regarding future deals. Even China, which sat on the fence maintaining a neutral stance for many months during the revolution until it became clear that Gaddafi would be overthrown, sent a delegation from its Commerce Ministry to Libya recently.
This takes us back to the question of whether there will be any favoritism towards companies from particular countries once an elected government is in place later this year. And at least one political figure in the country has been on record saying as much.
Dr. Abdurrahman Sewehli, a critic of Gaddafi since before the recent revolution and a potential Prime Ministerial candidate, was reported by BBC News as saying "I respect those powers who helped us, and they should get special treatment from the new Libyan government." But, he added that China, Russia and Germany, who were "actively against any military intervention" in Libya, would not.
This could spell bad news for companies like Russian oil firm Gazprom, which had several licensed blocks and concessions in Libya awarded to it by the Gaddafi regime.
However, despite heading an organization devoted to Libyan-British trade, the LBBC's Lamb does not agree that Libya should afford any country special treatment.
"There are all sorts of statements whizzing around. But our starting point in terms of policy at the LBBC is that we do not think it is in British companies' interests to look for 'rewards.' And we don't think it's right in terms of the Libyan revolution," he said. "One of the things that one hopes will come out of the Libyan revolution is an economy that, unlike its predecessor, is not dominated by corruption, by cronyism, by arbitrary decisions, by lack of transparency and lack of predictability. What we are all hoping is that the new Libya will have a properly-managed economy with all the international levels of management. That is the ideal. But by seeking favoritism, then that would work against that."
Lamb added that there are, in fact, some "self interest" arguments for British companies in favor of a highly-transparent environment for business in Libya.
"If you say that 'we did you a favor, we want a reward,' then lots of other people can come up and say 'we did you a favor, we want a reward' and you end up with a skewed marketplace. Okay, you get a reward, which might be in the self interest for an individual company, but it is not in the self interest of British business as a whole," he said. "It is much better for UK firms to compete on a level playing field and do well on the basis of quality and reputation."
But whatever flavor the Libyan government takes later on in the year, western oil companies (and western businesses in general) need to start building relationships right now with those Libyans who might become key decision makers. As Lamb told us: "It's get to know you time!"
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