By Benoit Faucon
Some big oil companies hoped regime change in Libya, and a sense
of political opening elsewhere in the Middle East and North Africa,
would bring relief in some of the tough terms they had agreed to in
partnership deals with national oil companies.
That hasn't happened.
As Libya's Moammar Gadhafi fell last year with the help of the
West and an interim regime took the reins, the hope among some oil
companies was that they would receive new tax breaks and a better
share of fields' output in current and future deals.
But the interim government in Libya, as well as administrations
elsewhere, largely plan to keep the same tough terms in place for
most conventional fields, as governments are mindful not to appear
to be selling out their countries' crown jewels.
New opportunities lie mostly in so-called unconventional
projects, which are especially expensive or require advanced
technology to develop. Higher oil prices are needed for such
projects to pay off, making them riskier and less profitable than
those available to national oil companies.
For such projects in Libya, investment conditions "can be
improved," Libyan Oil Minister Abdulrahman Benyezza said in a
recent interview.
(This story and related background material will be available on
The Wall Street Journal website, WSJ.com.)
For decades, many European companies had enjoyed deals that
granted them half of the high-quality oil produced in Libyan
fields. Some major oil companies hoped the country would open
further to investment after sanctions from Washington were lifted
in 2004 and U.S. giants re-entered the North African nation.
But in the years that followed, the Gadhafi regime renegotiated
the companies' share of oil from each field to as low as 12%, from
about 50%. Libya's state-owned National Oil Co. continues to get
the bulk of the barrels produced in joint ventures with oil
majors.
Just after the fall of the regime, several foreign oil companies
expressed hopes of better terms on existing deals or attractive
ones for future contracts. Among the incumbents that expressed
hopes in Libyan expansion were France's Total SA and Royal Dutch
Shell PLC.
"We see Libya as a great opportunity under the new government,"
Sara Akbar, chief executive of privately owned Kuwait Energy Co.,
said in an interview in November. "Under Gadhafi, it was off the
radar screen" because of its "very harsh" terms, said Mrs. Akbar,
whose company doesn't have a licence in Libya.
Others took a more cautious approach. 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 at the time. "That's for the new
leadership to consider."
Libya's oil officials say they will maintain the predetermined
levels of payouts for existing contracts, which cover conventional
oil production and exploration. The officials say no new deals will
be signed before elections scheduled for June.
Even then, any changes to the current investment framework would
be acceptable only in unproven areas such as deep offshore, or in
unconventional oil and gas projects, said Tamim Osman, an adviser
to the country's largest state-owned producing operation, Arabian
Gulf Oil Co.
Libya's National Oil Co., Mr. Osman added, might look for a
foreign partner to develop southeast Libya's Kufra basin, where
hydrocarbons are thought be trapped in thick, porous sandstone
formations. In such cases, producing nations depend on the private
companies for new technology and know-how.
"Anybody who is trying the unproven, high-risk areas should be
given improved terms," Mr. Osman said. "But in areas where oil has
already been discovered, there is no such need."
In spite of some hopes to the contrary, that leaves
international oil companies looking largely at high-risk, high-cost
leftovers.
"I don't think it's nice to see that IOCs only get called [by
state companies] on unconventional" projects, Total's Chief
Executive Christophe de Margerie said on the side of a Kuwait
conference in March. "Conventional is kept for national oil
companies. If we could have a little mix, it could be better for
us."
The dynamic is similar in Algeria, which sharply boosted its
social spending in jobs and housing to avert the sort of turmoil
faced by its neighbors. The North Africa nation will keep existing
conventional oil contracts--which are considered severe, though
less so than in Libya--unchanged.
Algerian authorities are considering tax incentives for foreign
oil companies, but mostly for difficult terrains such as offshore
and risky onshore acreage, according to Energy Minister Youcef
Yousfi. These include large swaths of shale-- which has proven a
game changer in the U.S. with huge discoveries of oil and gas.
After barring majors from a giant project of conventional oil in
the 1990s, Kuwait is in talks with Total and Exxon Mobil Corp. to
develop its heavy oil--a thick, hard-to-extract type of oil. Most
of Kuwait's conventional and easy-to-pump oil projects aren't open
for discussion.
Whereas conventional oil production in the Middle East needs
prices of $5 to $25 a barrel to break even, unconventional assets
typically need $50 to $113 a barrel, according to the International
Energy Agency. Most producing countries figure they can keep
pumping without new foreign help, but want assistance to develop
more ambitious projects that can prevent long-term output
decline.
The IEA warned last year that, if the Middle East and North
Africa don't invest enough in oil and gas reserves, oil prices
could rocket to $150 a barrel. Among the factors that could push
prices to that level, the agency cited "constraints on inward
investment as a result of stronger resource nationalism,
particularly in regimes seeking to pre-empt popular uprisings."
The region is generally "extremely difficult to get access" to
but political turmoil is "making investment more complex and
politically risky" and therefore expensive, said Peter Hutton,
London-based analyst at Canadian-owned broker RBC Capital Markets
LLC.