LONDON, (Reuters) – Uncertainty about oil and gas companies’ contracts with Libya, soon to be scrutinised and potentially revised, will persist until new leaders take power after June elections, delaying the industry’s return to normal in the post-Gaddafi era.
The transitional government has set up a special committee to investigate allegations of widespread corruption in the oil industry before the revolution unseated Muammar Gaddafi. Its determinations could lead to the withdrawal or reworking of now lucrative deals in the OPEC member, which has Africa’s largest crude oil reserves.
In the June elections, Islamist and secular parties will compete for seats in a national assembly, which will draft a new constitution for the country.
Libya’s deputy oil minister told Reuters this week that existing agreements with international oil companies must be examined before any new blocks or contracts can be offered.
“First we need to evaluate the outcome of the existing agreements and contracts,” said Deputy Minister Omar Shakmak.
“At this stage, we need to have some more studies and involve all the people with experience in the oil industry.”
Oil company executives say they expect the new leaders to demand that certain deals be revised. For now, while the political and legal landscape is in flux, they are keeping a low profile.
“Official declarations have not been consistent over time, but certainly they are going to revise contracts according to the best interests of the country,” an executive at a European oil major and one of Libya’s largest foreign oil producers said, speaking on the condition of anonymity.
“Getting through change, revolution, is part of our operations in north Africa,” he added.
Austrian oil and gas company OMV is among oil firms seeking to persuade their governments to unfreeze Libyan assets in the hope it will win them favour with Libya’s new leaders.
“What you put in during the (ongoing) revolution, you will get out,” OMV’s Libya manager, Harald Scheruga-Rosmarion, said.
In an example of how conflicting statements have cast doubt over current oil deals, Libya’s interim prime minister, Abdurrahim al-Keib, said in December that contracts with Italy’s Eni would be reviewed before being implemented again.
He also said Eni, the biggest producer in Libya, needed to prove itself by “playing a distinguished role” in rebuilding the country.
A few days later, however, Libya’s interim oil minister, Abdulrahman Ben Yazza, said his government respected Gaddafi-era oil contracts with foreign oil companies, including Eni.
Oil executives at Libya’s first oil and gas summit in Rome last week posed hostile questions about the restarting of frozen operating contracts to a Libyan lawyer, who spoke about the legal changes ahead.
“The contracts committee will assess and scrutinise contracts before resuming them,” said Yannil Belbachir, a partner at FARES, a Libyan firm that advises local and international companies.
Belbachir said Libya lacks a solid legal framework for coping with the industry in the aftermath of the revolution.
The firm’s website says the Libyan administration is entitled to renegotiate the terms of contracts and that firms should prepare for negotiations to take place.
Even before the uprising against Gaddafi, Libya’s state Northern Oil Corporation (NOC) had renegotiated deals to give Libya a greater share of production.
In one such revision in 2007, NOC increased its share of output in a deal with PetroCanada to 88 percent. PetroCanada also had to pay the NOC a signature bonus of $1 billion in three stages.
Some analysts say the forthcoming revisions may be relatively minor.
“The question is, ‘Will existing contracts be honoured?” Carole Nakhle, of the Surrey Energy Economics Centre, said at the Rome summit.
“They may be revisited, but it is unlikely they will be torn up.”
Foreign oil companies are even hoping that terms in some recent contracts may be eased.
Until late 2004, Libya’s unexplored territory had been off-limits for decades because of U.S. sanctions. In Libya’s most recent bidding round in 2005, when that land opened up and a scramble for acreage ensued, companies accepted some of the industry’s tightest exploration and production deals.
Fierce competition meant returns were narrower, and the results of initial efforts to find oil have been disappointing.
Analysts say a number of discoveries elsewhere in Africa, since then may have limited enthusiasm for Libyan deals.
“The oil industry is mobile. Unless Libya makes itself attractive, IOCs (international oil companies) will go away for another five to 10 years,” Charles Gurdon, managing director at Menas Associates, said at the summit.