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Shell’s Pulling Out of Libya: A Warning Message to both Oil Authorities, People
31/05/2012 00:07:00
By Ibrahim A. El Mayet

In a statement on Monday Royal Dutch Shell announced it will cease exploration activities and abandon drilled wells in Libya citing harsh contracts and current insecurity as major factors in the decision.

Like many International oil companies (IOCs) Shell has had disappointing exploration results in their Libyan concessions in recent years which led the company to consider further exploration works to be economically unsound.

The move does not represent a departure from Libya; the company will maintain its representative office in Tripoli and continue to engage with the Libyan authorities and the National Oil Corporation (NOC) for future opportunities.

IOCs operating in Libya usually enter joint ventures with NOC on the basis of Exploration and Production Sharing Agreements (EPSA).

But since 2003 NOC embarked on transferring all contracts signed IOCs to the stringent EPSA IV model, which reduced IOCs’ profit shares in return for extending the period of their licenses.

Many Libyan oil experts consider the terms of EPSA IV contracts to be favorable and transparent but remain amongst the toughest in oil industry. The EPSA IV agreements are not popular among IOCs and they have caused a number of them to pull out of the Libyan oil market in during the latter years of Gaddafi regime.

It seems that the new Libyan authorities have been slow to meet the hopes of IOCs for more preferable terms and the current interim government would rather maintain the contracts that are based on EPSA IV agreements terms to stay the same.

These issues will have to be addressed by the new government which will be formed after the elections scheduled for 19th June.

While Libya is keen to protect it sovereign assets, Libya's oil industry depends on the engagement of IOCs. Following Shells decision, Germany’s Wintershall the second largest IOC in Libya (accounting for nearly 6% of Libyan output) has issued a warning that the current terms could impact on decisions regarding future investment in Libya.

Libya faces many challenges in maintaining current levels of production at mature fields and finding and developing new oil fields as well. Yet most of the large Libyan territories remain unexplored as a result of past sanctions and disagreements with foreign oil companies.

While Libya holds the largest oil reserves in Africa and the eight largest oil producer in the world its oil is even more attractive due to its low cost of oil recovery, high oil quality and proximity to European markets, Shell's pulling out represents a message from key players in oil industry to the Libyan government and that is 'we do not see eye to eye'.
Libya NOC should see the writing on the wall now. The IOCs, mostly a motley gang of Western Oil Companies are engaging in Economic colonization. E&P in oil is not a rocket science. Libya should follow its own path of training and investments, after all she has all the money to train its manpower so that it wont be held ransom again in the the future. Following the model of Petrobras and Petronas would be a good start. You can do it Libya...spend your money wisely on Education, Public Housing, Healthcare and you should be fine. Libya should also jealously guard its precious national resource, it cannot be replaced. Engage the IOCs wisely and smartly. If Shell does not wish to continue, so be it. There will be many more on the line willing to come in, the Chinese, Indians, Latins, Middle Easterners.....etc. Act wisely and don't be intimidated.
I agree with the two previous comments. Especially Mr. Ali. They are playing a game, a dangerous game with our future and the future of our children. If ever the NTC or the new incoming government has to take a firm and confident stand will be now, on the issue of the oil contracts. May god be with you!
Libya should train and use its own talented professionals, it has the finance and resources to do so!

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