06.04.2009: FRENCH TOTAL-LED CONSORTIUMS ACCEPT LOWER PRODUCTION SHARES IN LIBYA
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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) 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
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