Oil & Gas contracts in Libya

Interview: Alexander von Hahn

Abdeljalil Mohamed Mayuf, information director of Libya’s Arab Gulf Oil Company, about old deals, new partners, and the demise of the National Oil Company.

zenith: Dr. Mayuf, you have spent more than two decades working in the Libyan oil industry.

Abdeljalil Mohamed Mayuf: I started working for AGOCO in the early nineties. In Qaddafi’s Libya the oil sector was under very strict control of the state. The National Oil Company, NOC, established in the seventies, has dominated the industry even before the Ministry of Energy was abolished in 2000. The NOC was in charge of all sales of Libyan energy resources, as well as regulating the legal and operational framework for those foreign companies which worked in Libya. After the end of sanctions access to oil and gas resources often became the question of loyalty or tolerance towards the Qaddafi regime. Shukri Ghanem, then president of NOC, was often returning from his trips to Europe, Americas, Asia with contracts concluded on terms only known to him and a few other officials from the government. You see, no transparency, no clarity. All we had to do was to deliver – not discuss or even understand, what government policy in the oil and gas sector was.

 

Yet the years leading up to the revolution were particularly good for the Libyan energy sector – new contracts, licenses, projects ...

Yes, but please don’t forget that we were subjected to international sanctions for almost thirty years! While other oil-producing countries were building their economies we spent our money on Soviet-made weapons and armaments. Much of our production assets need total replacement or modernization, we need new technological solutions, new infrastructure, we need to step up the exploration. Only thirty per cent of Libya has been explored so far.

 

Which means you need to get as much foreign investment as possible. This seems to be problematic taking into consideration the current state of affairs in the country, devastated by the civil war.

I don’t think you have to ask me why we had to do it,why we had to get rid of Qaddafi and his people. Yes, from the economic point of view war is not the best remedy. We have lost almost half of oil production and now have to spend millions to catch up. But AGOCO supported the revolution from the start by providing moral and financial help to the rebels. We gave them food, transportation, shelter. From the start we were the revolution’s driving force.

The »AGOCO revolution«?

You may say that. We have made everything possible for the revolution to succeed, including most of the financial assistance needed. We were selling oil already in March, even earlier, from February 21, from the very beginning. Under Qaddafi we were not allowed to trade and we had no experience in it. But where was no time to waist, and we built a team of traders who – often by telephone book and internet – were able to find buyers for our products. And it was vital for us to keep control over Brega and Ras Lanuf refineries. That was the task for our new army and our field commanders.

 

Did it take long to find buyers?

Not really. People were willing to help us. From all over the world – traders from America, Switzerland, other countries. We still work with them today because now we are importing oil products to the country, not only selling oil. We are a big trading company, providing new Libya with all it needs.

 

An »oil trader from Switzerland« – do you mean Glencore?

Yes, Glencore, and Dutch company Vitol.

 

Moving on to the future Libya: what role, do you think, will the NOC play in the national oil sector?

Actually, I don’t see the NOC playing any role at all. In fact just two months ago we’ve petitioned the Transitional Council to abolish the NOC and, instead, create a Ministry of Oil and Gas.

»All we had to do was to deliver – not discuss or even understand, what government policy was«

So you started to think about the future long before the end of the revolution?

We – and by that I mean not only AGOCO, but also other companies and unions that signed that petition – asked Ali Tarhouni and Mustafa Abdul Jalil to consider replacing the NOC with an government institution responsible for the overall administration of the industry: legal, technical and safety regulations, environmental control, issuing licenses for the exploration of new fields, development of infrastructure. At the same time every company will be responsible for production and will be accessing the markets directly, rather than through an intermediary.

 

Might it as well be that the »cancellation« of the NOC will bring about the revision of existing business arrangements – no NOC, no contracts?

I don’t think it’s possible. Of cause, in some cases, the revision might be necessary. Like the contracts signed between the NOC and the Russian company Gazprom. I can’t comment on the current state of negotiations, but I am sure it would be very difficult for the Russians and the Chinese to have new agreements or concessions work in Libya after supporting Qaddafi till the end.

 

Wouldn’t it better to let the past be the past?

Another problem are the Libyan assets in Russia and China. We have practically no information about them. Others provided us with quite an accurate account, but we have practically no information from these two countries. This may prove to be another miscalculation on their behalf.

 

But you welcome Western oil companies and are willing to open up the country for Western capital?

Of course. We need investment, we need expertise and know-how. Currently, we have seven national oil companies and another thirty service companies. It is not a problem to have another few enterprises developing oil and gas fields – Libya has a lot of potential and everyone is welcome. The only criteria are the benefit of the Libyan people and our long-term economic development. Only two weeks ago I visited the German company Wintershall, their concession in the Libyan desert. They’ve already resumed production and now are pumping out 60,000 barrels a day of crude oil. This is fine, though before the revolution they were pumping out twice as much.

 

The oil produced has to be delivered to international market. Is it sold by you?

Yes, because so far no one else is exporting Libyan oil. Only through the AGOCO terminal in Tobruq.

»A democratic Libya can afford many political parties and oil companies«

And how do you distribute the profit?

We remain the only importer of gasoline, diesel and naphta to Libya – it costs a lot to supply the whole country. Then AGOCO also has to pay back something like two billion dollars of credit which was given to us to import oil products during the revolution. The rest goes to the provisional government and, indeed, to our account to pay salaries and other related expenses. At the moment we produce almost 250,000 barrels per day. Before the revolution that used to be 425,000. The whole of Libya currently produces only 540,000 barrels per day. During the war many oil wells were closed and the process of reopening may take time – two or three months. Currently, AGOCO opens ten to twenty wells per week and we expect to reach the 400,000 barrels per day level by February. So, our financial situation will improve dramatically.

 

Will a new Libyan government, as soon as it is formed, continue signing production sharing agreements, or will it be taking the path chosen by the new Iraqi government, which, instead of PSAs, awards service agreements?

This remains to be seen. At the moment there’s not much thinking about the way the Libyan economy will be run. We’ve just managed to succeed with our revolution – people haven’t yet started to think about the future economic policy. Politics – yes. Economy – perhaps a little later. Regarding the form of our future cooperation with the oil majors: during the last five years we used to sign exploration and production sharing agreements with many Western companies. Perhaps we will do the same in future. But what’s important is the way these contracts will be concluded and executed. We need transparency, we need to see benefits for the Libyan people, not for one family or the group of people.

 

What about a privatization of AGOCO? An IPO in London, perhaps?

We don’t discuss it now, but it is an interesting topic. All depends on the policy of the government which is to be formed. And not only a government – we have to elect a parliament and to create, not reform, a new political system. The role of the energy sector is important, but it has to serve the interests of the nation.

 

Don’t you think the break-up of the NOC will lead to the break-up of Libya into independent or semi-independent regions with their own oil based economies, their own tribal and social life?

I don’t think so. After all, this is the first time we’re able to build a democratic Libya, which can afford many political parties and oil companies, a diversified industry base. You know, energy is not the only way out of poverty. We have great potential for tourism, agricultural development, infrastructure. And we have many partners around the world willing to support and work with us.