Libyan NOC Head Says a New Oil Law is Being Drafted

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Libya is currently working on the drafting of a new oil law, replacing the current oil law, which dates from 1955—albeit with several newer amendments and annexes. The news came through comments from the North African country's top oil official, Shukri Ghanem, who serves as chairman of the National Oil Corporation (NOC) and as the de facto oil minister. "It is an appropriate time to review the old law", he told Reuters on Sunday (14 March), adding that "we have prepared a draft law which needs further discussion by the National Oil Corporation and others so it can take into account all important changes in the global oil market." His comments on the topic during the interview stopped short of providing greater clarity on the matter, though he did also say that plans for a second subsea gas export pipeline to Europe were shelved for the moment as the long-term gas demand recovery in the European markets following the current economic downturn was studied. While commenting briefly on BP's massive exploration programme in Libya—saying that 2D and 3D seismic programmes had uncovered "encouraging" leads—he also further signalled a shift in attention by again reaffirming a focus on the downstream sector and in particular the renovation and expansion of the 120,000-b/d Zawia refinery.

Technology as a Driver

Libya's ageing oil law does not sit well with new types of projects at mature fields—especially not those using methods that barely existed at that time. In 1955 Libya was just about to enter its oil era, and drawing up this law put an emphasis on exploration and development, with production seen as a relatively static follow-on. Today, almost all of Libya's production capacity comes from more-or-less mature fields, which require different modern injection technologies to see their production plateaux extended or recovered. This raises significant questions about, for instance, associated gas use, or the use of gas from other fields, as well as over water supply or other more advanced injection methods, which did not necessarily exist in the mid-1950s. A new legal framework would be able to approach these issues in a more straightforward and transparent way than the old law with its amendments, as well as facilitate changes that would make it easier to plan and execute projects that involve calling on other associated or nearby resources for the regeneration of specific reservoirs.

Libya's NOC is in dire need of technology transfers after decades of underinvestment, deficient training, and international isolation. The corporation has, however, failed to build up an organisation able to harbour technology gains from joint venture (JV) partners—something that will be key if the new technologies applied at its JV projects going forward are to be spread to the large fields exclusively operated by the NOC. A more modern oil law could become very helpful even in this regard, by clarifying the NOC tasks in particular in a better way and allowing the company to be better funded by the Libyan government—especially from a research and development (R&D) point of view.

Organisation as a Brake

The NOC has had an increasing battle against mature decline at its main producing oilfields, but while it succeeded in attracting a lot of exploration investment—some of which has also been followed through—progress on modernisation and enhanced oil recovery (EOR) investment at the mature assets has been slow, almost on the verge of non-existent. That is not for the lack of foreign partners or even investment commitments: the NOC has, over the years, during renegotiation drives with existing oil companies, secured large mid- and long-term investment pledges at its producing fields in exchange for long extensions to those firms' production-sharing agreement (PSA) contract periods. While the attention of the top executives in the NOC and the Libyan government has been devoted to contractual negotiations, however, the rest of the top-heavy and inflexible bureaucracy has been largely mired, leading to long delays or complete stalemates surrounding the redevelopment projects. NOC is a JV partner in all the mature fields where foreign players operate, and when the top leadership has focused on contractual terms there has been insufficient executive capacity available to cut red tape and make the necessary investment, organisational and technical decisions to move forward with developments (see Libya: 23 October 2009: Oxy Blames "Slow Government" for E&P Project Delays in Libya).

Libya's organisational problems are outlined in a recent IHS Global Insight Special Report, outlining the institutional uncertainties and organisational problems faced by the oil industry and private investors in the country, not the least given the tug-of-war for influence over the country's main revenue-earning industry between reformers and regime hardliners, which has intensified over the past five years (see Libya: 12 February 2010: Back to Square One—Who Controls Libya's Hydrocarbons?). With constant reorganisations and an inherently opaque decision-making structure, the country has been unable to provide the long-term stability needed for lower-margin EOR and mature field redevelopment projects form an investor point of view, although—as indicated above—with NOC's decision-making abilities increasingly politically curtailed and its focus being directed to contract renegotiations and quick signatory bonus earnings, the NOC has been unable even to progress with many mature projects—sometimes not even as far as a final investment decision (FID).

Outlook and Implications

Opaque organisation and leadership structures are a staple in Libya, and although that is unlikely to change, a new national oil law would hopefully bring clarity to the decision-making structures and vest the lines of decision with more authority, while also hopefully ushering in an era of greater institutional stability, give that less of the decisions and institutions would be based on a seemingly ad hoc legal footing. The passing of a modern oil law would be seen as giving the institutions and organisations outlined in the bill a strong endorsement from Libya's leader, Muammar al-Qadhafi, which would make it significantly harder for factions to attempt rewrites and changes—at least during an initial five-to-ten-year period.

This could prove immensely important for the EOR projects in Libya—which in effect are the country's only hope of being able to sustain its current 1.8-million-b/d oil production capacity and, in fact, of being able to raise it to between 2.5 million and 3 million b/d in the coming 10–15 years. Oil companies should not hold their breath, however, as a new oil law has been promised in the past, as have other comprehensive reforms, and political factions on all sides in the country benefit from this opacity, as it allows them to gain influence in areas from which they would otherwise naturally be shut out.

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