Libyan Oil Contracts: Negotiating the Future Generation of EPSA

The Petroleum Law No. 25 of 1955 is considered the legal authoritative text for the Libyan oil industry. The Libyan Petroleum Law no. 25 of 1955 divided concession areas into small exploration sections not exceeding 75,000 square kilometers. In contrast with other Arab countries, both large and small oil companies began exploring the Libyan Desert as a result of the planned strategy provided by the aforementioned law. In effect, the Libyan government enabled many foreign and domestic investors to drill rather than allow a monopoly of one or two investors to control the concession areas.

Libya is not only notorious for being one of the most difficult Middle Eastern countries in which to enact legislation, but is also known for its rigorous negotiation tactics. In 1970, Libya was able to increase its profit share (royalties) in their agreements with the IOCs to 55% after pressuring the IOCs to reduce their share. With the aim to increase its share of royalties under the IOCs oil and with the threats of nationalization of oil companies, Libya was able to move from the traditional concession agreement to a new contractual relationship based on profit sharing.

The EPSA Family

Under the new setup of participation in the oil production established in 1972, Libya became the holder of 51% of the shares in the concession agreements. Companies who refused to adhere to the new rules, such as British Petroleum, were nationalized. Between 1974 and 1979, the introduction of Exploration and Production Sharing Agreement (EPSA 1) was enacted. Libya continued to issue new versions of EPSA hoping to attract more investors in the oil industry. EPSA II was introduced in 1979, followed by EPSA III in 1988.

EPSA IV was introduced in 2005 at a time when oil prices were high, making investing in the Libyan oil industry attractive. Through EPSA IV, the NOC granted itself power by replacing the local Libyan partners to the IOCs. Hence, the NOC became a decision maker in all important aspects of production under the new agreement.

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