Modifying the Libyan Fiscal Regime to Optimise its Oil Reserves and Attract More Foreign Capital Part 1: LEPSA I Proposal

The current Exploration and Production Sharing Agreement IV (EPSA IV) has deficiencies that militate against increased capital investment in Libya's petroleum industry. This paper proposes an improved technique for determining the equity split called the ‘share equation’. The proposed share equation would simplify the Libyan fiscal regime and will provide an incentive for foreign oil companies to invest more during the contract period by raising their percentage share of production when they increase their capital expenditure. More capital expenditure will lead to increasing the recoverable reserves and will subsequently improve the oil recovery for individual fields and for the entire country. The share equation will change the percentage share of production automatically with any change in the oil price. It will increase the percentage share of production of the Libyan National Oil Corporation when the price goes up, and increase the percentage share of production of the foreign oil companies when the oil price goes down. Furthermore, the share equation takes into consideration the probability of success in each of the Libyan basins. The foreign oil companies will get an increased reward when deciding to take more risks by exploration in unknown basins such as the Kufra basin and Cyrenaica platform. But, the share equation will eliminate the restrictive parameters like A and B factors, base factor and R ratio in the current EPSA IV model. This proposal for modifying the Libyan fiscal oil regime aims to increase Libyan oil reserves and attract more foreign capital. By giving more flexibility to the foreign oil companies, the Libyan oil sector will get more contributions of foreign capital and technology. This will improve Libyan oil production and increase the remaining oil reserves. We call this new agreement the Libyan Exploration and Production Sharing Agreement I.