FRENCH TOTAL-LED CONSORTIUMS ACCEPT LOWER PRODUCTION SHARES IN LIBYA

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C O N F I D E N T I A L SECTION 01 OF 02 TRIPOLI 000438

NOFORN

SIPDIS

STATE FOR NEA/MAG, COMMERCE FOR NATE MASON, ENERGY FOR GINA

ERIKSON, (NATHAN MASON),ADVOCACY CTR (REITZA),AND CLDP (TEJTEL

AND MCMANUS)

CAS FINANCIAL ATTACHE (SEVERENS)

LONDON AND PARIS FOR NEA WATCHER

E.O. 12958: DECL: 6/4/2019

TAGS: ECON, EPET, ENRG, EFIN, EINV, LY

SUBJECT: FRENCH TOTAL-LED CONSORTIUMS ACCEPT LOWER PRODUCTION SHARES

IN LIBYA

CLASSIFIED BY: Gene Cretz, Ambassador, Embassy Tripoli, U.S.

Department of State.

REASON: 1.4 (b),(d)

1. (C/NF) Summary: Libya's National Oil Corporation (NOC)

renegotiated the terms of its production sharing agreements with

France's Total and its partners in Libya (Germany's Wintershall

and Norway's StatoilHydro),adjusting the existing stand-alone

contracts to bring them into compliance with the Exploration and

Production Sharing Agreement (EPSA) rubric. The renegotiation

of Total's contract is of a piece with the NOC's effort to

renegotiate existing contracts to increase the Libya's share of

crude oil production. An interesting corollary is that one of

the affected fields is that from which Saif al-Islam al-Qadhafi,

a son of Muammar al-Qadhafi, periodically obtains oil lifts,

which he sells to finance his various activities. Depending on

whether his lifts had been coming out of the NOC's production

share or Total's (it's not clear what the arrangement was),the

renegotiated agreements could adversely impact his revenue

stream. End Summary.

2. (SBU) The NOC had already renegotiated its agreements with

other international oil companies (IOCs) producing in Libya to

align those contracts with the EPSA-IV framework. Under EPSA-IV

terms, IOCs commit to upfront signing bonuses to the NOC, a

lower share of produced oil and gas, technology transfers,

training of local employees and investment to re-develop

existing fields. Italy's Eni, Canada's Petro-Canada, a European

consortium headed by Spain's Repsol, and a consortium headed by

U.S. Occidental ("Oxy") signed renegotiated agreements under

similar terms with the NOC in June-July 2008. Those companies

cumulatively paid the NOC USD 5.4 billion in upfront bonus

payments as part of the renegotiation process.

3. (SBU) The renegotiated Total agreements cover production at

the Mabruk field (jointly operated by Total and StatoilHydro)

r />
and the al-Jurf field (jointly operated by Total and

Wintershall). Under the new agreement, the Total-Statoil and

Total-Wintershall consortiums will pay a signing bonus of USD

500 million to the NOC - USD 200 million at the signing and the

remaining USD 300 million when the viability of gas exploitation

in al-Jurf field is confirmed. The consortiums also committed to

develop more robust training programs for local employees.

Exploration and development costs associated with increasing

production capacity of the Mabruk and al-Jurf fields will be

shared equally by the NOC and the consortiums.

4. (SBU) Each consortium will take 27 percent of oil production,

down from the 50 percent take they had under the previous

agreement. For gas, the consortium will take a 40 percent share

(down from 50 percent),which will be reduced in the future to

30 percent. For the Mabruk field, which is located in the Sirte

basin and produces some 20,000 barrels of oil per day, the new

production share is 73 percent for the NOC, 20.25 percent for

Total and 6.75 percent for StatoilHydro. The contract's

expiration date has been extended from 2027 to 2032. For the

offshore al-Jurf field, which produces 45,000 barrels of oil per

day, the new share is 73 percent for the NOC, 20.25 percent for

Total and 6.75 percent for Wintershall. Natural gas produced at

al-Jurf will be split as follows: 60 percent for the NOC, 30

percent for Total and 10 percent for Wintershall. The al-Jurf

contract has been extended from 2017 to 2032.

5. (C/NF) Comment: The new production share percentage accepted

by Total and its partners is still considerably larger than

those obtained by other IOCs in renegotiating their existing

contracts. It is also larger than the production shares of

companies who won contracts in the most recent EPSA-IV bid

rounds. The new agreement still guarantees Total, Wintershall

and StatoilHydro longer access to existing Libyan reserves and

further field development opportunities, with the potential of

increasing oil production. An interesting potential corollary is

that al-Jurf is reportedly the field from which Saif al-Islam

al-Qadhafi, a son of Muammar al-Qadhafi, periodically obtains

oil lifts, which he sells to finance his various activities. It

is not clear whether those allotments have come from the

production share of the NOC or Total (Saif has strong ties to

senior French business and government figures). If his take has

been coming from Total's production share, there could be a

reduction in the number of lifts he is consigned and a

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corresponding decrease in his bank account's bottom line. The

timing is particularly bad, coinciding with other recent

setbacks for Saif al-Islam that include the March cabinet

shuffle that did not favor his reform efforts, his brother's

successful visit to Washington (viewed as a threat to his

perceived primacy on the U.S.-Libya account) and the recent

nationalization of his al-Libia satellite television channel.

End Comment.

CRETZ

FRENCH TOTAL-LED CONSORTIUMS ACCEPT LOWER PRODUCTION SHARES IN LIBYA

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