EUROPEAN OIL COMPANIES EXTEND CONTRACTS IN LIBYA

UNCLAS TRIPOLI 000597

SENSITIVE

DEPT FOR NEA/MAG; COMMERCE FOR NATE MASON; ENERGY FOR GINA
ERICKSON

E.O. 12958: N/A
TAGS: ECON EINV EPET NO SP FR AU LY
SUBJECT: EUROPEAN OIL COMPANIES EXTEND CONTRACTS IN LIBYA


1. (SBU) Summary: Libya's National Oil Corporation (NOC) has
signed extensions for a pair of exploration and production
sharing agreements (EPSAs) with Spain's Repsol, France's Total,
Austria's OMV, and Norway's Saga Petroleum, continuing its
policy of redefining old contracts under the new EPSA IV
framework. The joint investment commitment in the new deal
should help boost Libyan production significantly in the years
to come. End Summary.


2. (SBU) In a widely-anticipated move, a consortium of European
oil companies has extended its contracts in Libya. A new EPSA
agreement signed on July 17 with a four-company consortium
operated by Spain's Repsol covers two blocks, NC115 and NC186,
in the Marzuq Basin, and extends the duration of the contracts
to 2032. This represents an additional 15 years for NC-115, and
from five to nine years (depending on the specific fields) in
block NC-186. The deal ensures the exploitation of the vast
resources discovered in both blocks, whose remaining proven oil
reserves at the end of 2007 totaled 765 million barrels.


3. (SBU) Within the new framework, the production share for the
European consortium will be reduced from 25% to 13% for NC-115
and from 40% to 12% for NC-186. Under the former agreement, the
production share was 75% for the NOC, 10% for Repsol, 7.5% for
OMV, and 7.5% for Total in Block NC-115; and 60% for the NOC,
12.8% for Repsol, 9.6% for OMV, 9.6% for Total, and 8% for Saga.
The new agreement represents 87% for NOC, 5.2% for Repsol, 3.9%
for OMV, and 3.9% for Total for block NC-115. In block NC-186
the new percentages run 88% for the NOC, 3.84% for Repsol, 2.88%
for OMV, 2.88% for Total and 2.4% for Saga. The new contract
also includes a $1 billion signature bonus payable by the
consortium over three years, and a gross investment requirement
in excess of $4 billion, of which 50% will be covered by the
NOC, in an effort to reach a steady-state production level of
380,000 barrels of oil per day.


4. (SBU) Comment: Repsol, OMV, Total and Saga Petroleum have
followed other major actors in Libya in acceding to pressure by
the NOC to convert to the new EPSA-IV framework, which features
significantly reduced production shares for international oil
companies (IOC's). The revised deals have allowed IOC's to
guarantee access to significant deposits of high-quality oil
while also securing new field development opportunities jointly
funded by the NOC. The expected increase in production under
this deal should make a significant contribution to the NOC4s
aspiration of doubling Libya's oil output to more than 3 million
barrels per day in the coming years. End comment.

GODFREY