Foreign Oil Companies Say Tough Terms Could Deter Libya Investment

LONDON (Dow Jones Newswires), Nov. 18, 2011

Foreign oil companies operating in Libya warned this week that current contracts could deter new investment, even though the fall of Col. Moammar Gadhafi has been sometimes perceived as paving the way for a new oil rush in the country holding Africa's largest oil reserves.

Libya's deputy oil minister says the country would show flexibility once new contracts are tendered but existing agreements won't be changed.

Contractual terms "determine what investment you are going to get," said Martin Bachmann, an exploration and production executive director at Germany's Wintershall Holding GmbH. "That's for the new leadership to consider."

But in an interview with Dow Jones Newswires, Omar Shakmak, a deputy to interim oil and gas minister Ali Tarhouni, ruled out any change to current deals. "We will honor our contracts," he said. But "it is not our intention to make any changes to existing contracts."

However, Shakmak didn't rule out new terms for future licenses, which won't be proposed before elections, due within eight months.

"For a new contract, it could be revised" from what was practiced under the previous regime, he said. "There could be more flexibility to protect the rights of both parties," referring to foreign oil companies and the government.

The remarks are part of an emerging debate in the Libyan oil industry as attention slowly turns from resuming production to attracting fresh cash after decades of underinvestment.

"There will arrive a point where there is a new phase of development" for each given acreage, Wintershall's Bachmann told Dow Jones Newswires on the sidelines of the Oil Council conference.

The contractual terms "are horrible" said Sara Akbar, chief executive of Kuwait Energy Co., who is considering bidding for Libyan acreage when new licenses are tendered.

Back in 2009, most foreign oil companies, including Wintershall AG, were forced to revise existing deals and cut stakes from 50% to as low as 12%.

The renegotiation was designed to align old contracts with the terms of new oil and gas rights granted in 2005. But a string of awardees from these recent licenses, such as Chevron, exited after finding the combination of harsh contracts and disappointing exploration results wasn't worth staying.

Experts concur Libya's oil and gas framework makes for a tough environment. Henry Smith, an analyst at consultancy Control Risks, says that in the last years of Gadhafi's regime, "the screw was tightened for some oil companies."

But Control Risks' Smith warned the government may have little room to maneuver in sweetening the terms of licenses. After toppling Gadhafi, "they would look like they are handing out the country's resources," he said. "That would go down badly on the street."

So in the new Libya, oil investors appear headed for a showdown. "Unless Libya changes its contracts," its oil potential won't be fulfilled, said Jon Ferrier, a business development vice president at Maersk Oil and Gas.

The Danish company is studying the possibility of entering the country. But Ferrier said that in such a global market companies are always able to invest elsewhere, citing a current boom in Iraqi Kurdistan.

Copyright (c) 2011 Dow Jones & Company, Inc.


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Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.
Mohamed Bashir Barakat | Nov. 21, 2011
I worked before in Kuwait energy co. it is one of best companies.

Abdusalam Azedani | Nov. 21, 2011
None of the speakers in your report mentions the positive points of the Libyan oil in terms the cost of extraction, sweetnes, location etc. They spoke about margins and gains. This is a typical greedy way. Remember the competition is so tough, there are many who can accept those reasonable terms as long as the properties and the interest of foreign company well protected in Libya. Besr regards, Abdusalam Azedani Oil & Gas Process Engineer (EU-Libyan Citizen)

Carl Schonborn | Nov. 21, 2011
Sounds like the "Magnificent 7" talking. Contract will have to satisfy the "New" Libya. Lives were lost for this cause.

Robert Warburton | Nov. 20, 2011
I read sometime time ago that the Tengiz Field was one of the three most utilized fields in the world. If virtually all of the oil in that field would be extracted with existing technology, what long-term potential for oil production does Libya have?

Anthony A. Mifsud | Nov. 19, 2011
"Unless Libya changes its contracts," This is only a controlled situation, All the birds will come to roost.


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