Overview of Libyan Regulation

=Oil Industry Regulation Today=

Libya's oil industry is run by the state-owned National Oil Corporation (NOC), which is the body responsible for implementing the Exploration and Production Sharing Agreements (EPSAs) with international oil companies (IOCs).

Since the introduction of the EPSA contractual framework in the 1970s, several versions have been released, the latest being the EPSA IV, introduced for the first time with Libya's first post-sanctions licensing round in January 2005. IOC participation in Libya's oil concessions was initally as high as 49 percent. However, changes to the production sharing agreements under the EPSA IV Licensing Round in 2005 limited IOC production shares. The Libyan government has since required that IOCs already operating in the country rewrite existing contracts to comply with the new framework.

The government was looking to hold its first post-Gaddafi licensing round in 2013, as part of a long-term plan to raise its crude production capacity above 2 million barrels per day (bpd).

Review of Gaddafi-era contracts
Following the 2011 revolution, the National Transitional Council (NTC) announced that it was setting up a 20-strong Oil Committee with the power to end, amend or renegotiate Gaddafi-era oil contracts, sometimes referred to as the 'Twenty Committee". The group began a major review of nearly 10,000 business contracts signed under Gaddafi, including in the energy sector, to ensure fairness and hunt for evidence of corruption. The government was expecting to complete the contracts review by mid-2013.

=Legislative basis for oil and gas sector=

Petroleum Law 1955
The Petroleum Law No. 25 was enacted in 1955, which provided a legal basis for the oil industry and precipitated a period of rapid growth in exploration activity. The first concessions were awarded in 1955 and by 1968, 137 concession agreements had been awarded to 42 different companies.

Previously, the Minerals Law of 1953 had been in force, which enabled surveying to be carried out, however the Petroleum Law was the first to allow drilling operations. The Petroleum Commission was soon established as the autonomous public agency responsible for implementation of the Law, but was abolished in 1963 and powers transferred to the newly established Ministry of Petroleum Affairs.

The law divided the country into four zones across the provinces of Tripolitania, Cyrenaica and Fezzan and intended to create on 'open door' policy. The stated intention was to 'induce the largest number of oil companies to come to Libya to carry out oil operations herein' and to thereby create competition. This stood in contrast to the rest of the Middle East at the time, where large concessions were often granted to one oil major or a joint subsidiary of two. In the Libyan law, there was also no most-favoured-nation clause, as existed in Iran, Iraq and Saudia Arabia.

The 1955 Petroleum Law, as amended by the successive versions of the EPSAs, continues to apply in 2013. However Libya began a review of its petroleum law in 1998.

Evolution of EPSA framework
In 1972, with the aim of nationalising Libya's oil industry, the NOC introduced participation agreements to replace the former concession agreements. The participation agreements transferred 51% of all concessions to NOC. Most of the IOCs accepted the new terms voluntarily, but others had their interests nationalised in whole or part. The assets of British Petroleum (BP) were the first to be nationalised. Between 1988 and 2001 Libya awarded 47 blocks on EPSA III terms.

In 1974 the Libyan Government introduced the first Exploration and Production Sharing Agreement (EPSA). Ten EPSA I contracts were signed in the 1974-1979 period. The government introduced EPSA II in 1979 to reduce concerns over reserve replacement ratios. Nevertheless, during the 1980s the NOC's makeshift gesture of admitting East European companies to explore oil coupled with the more appealing conditions of the EPSA II agreements failed to solve the country's basic problem of insufficient exploration, according to Libya specialist Dirk Vandewalle. Aside from Eastern European companies, Libya proved unable to attract many new companies despite the known existence of acreage.

Faced with the collapse of oil prices in the mid-1980s, low internal production, the effect of the economic sanctions and financial difficulties linked to considerable expenditures on the Great Man-made river project and Misrata steelworks, the government introduced the EPSA III framework in 1988 with improved terms in order to attract investors. A particular attraction for the IOCs were the terms relating to cost recovery. Between 1988 and 2001 Libya awarded 47 blocks on EPSA III terms.

In January 2005 the latest model for exploration and production, the EPSA IV, was introduced.

=External Links=

EI Sourcebook: Libyan Petroleum Law

=References=