EPSA 4 Model Not a Viable Option to Develop the Future of Libya’s Oil and Gas Industry
Dr. Charles Gurdon, Managing Director of MENAS Associates, discusses Libya’s options to attract IOCs as well as the opportunities that present themselves for IOCs in North Africa.
According to Dr. Gurdon, the EPSA 4 does not provide attractive or viable commercial terms for IOCs to continue to operate in Libya.
“Unless they find oil or gas while finishing their current work programmes, most of the existing non-producing IOCs working in Libya will leave the country once their work programme is complete,” said Dr. Gurdon. “They will probably be replaced by a smaller number of new companies who will try to enter the country on the back of bilaterally negotiated deals but only if the terms are more attractive than EPSA 4.”
The EPSA 4 is the most recent contractual model used by the NOC to govern contracts with IOCs operating in Libya. Under this framework, winners are now determined largely based on high a share of production a company was willing to offer the NOC.
Currently however, Libya is likely to go through a difficult time in the next six months as they choose a new cabinet. Once that cabinet is commissioned and security issues resolved, developing the oil and gas industry can begin to proceed in the right direction.
Dr. Gurdon said: “The NOC in the past had to be more powerful than the ministry, which was certainly the case under Shoukri Ghanem, who did not want any interference from the Ministry which had to be weak. I think now we are going to have a situation where the new government would want to bring the NOC more under its control than in the past.”
Furthermore, another issue that Dr. Gurdon raised was that of how much autonomy NOC subsidiaries such as Agoco and Sirte Oil are given. He stated that it looked like there was going to be greater autonomy for them, but at present it looks like the NOC is gradually retaking control of its subsidiaries.
Although Libya’s Oil and Gas Minister, Abdurahman Benyezza stated that the new democratic government has pledged to invest US$10 billion to raise oil and gas production capacity from existing fields and US$20 billion on new exploration over the next 10 years, western IOCs seem to be less interested with Libya than other North African countries.
Dr. Gurdon stated that there is a dilemma that is occurring in North Africa with regards to investment and technology as currently the Middle Eastern IOCs that are relatively inexperienced from a technological perspective are more interested in doing business with the new governments in North Africa than western IOCs.
“If you need cutting edge technology and experience, then you will probably need the Western IOCs. So it is a balancing game of getting those companies that have that experience and technology against those that want to come in and offer the best deals” said Dr. Gurdon.
Dr. Gurdon is confirmed to participate at the North Africa Oil and Gas Summit held in Vienna Austria from 6 – 8 November 2012 and organised by The Energy Exchange.
On being asked what he would like to see IOCs and EPCs demonstrate at the summit, Dr. Gurdon replied: “I think really the summit gives opportunity for both sides to speak frankly about the situation. I think for too long the NOCs have believed that because they have oil and that they are reasonably close to the market, the IOCs will come in automatically. I think the IOCs need to put the case very clearly that they are in a competitive environment and that they have the ability to go anywhere.”
The seventh annual North Africa Oil and Gas Summit will promote a collective vision on North Africa by convening NOCs, governmental representatives and major international investors. The summit will address key challenges oil and gas companies will face that will include political stability, contractual and physical security, the need for technology and innovation to unconventional resources will be on the agenda.
For more information on the 2012 North Africa Oil and Gas Summit, please visit: http://www.theenergyexchange.co.uk/
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