Modifying the Libyan fiscal regime to optimise its oil reserves and attract more foreign capital part 1: LEPSA I proposal

• Author: Jennifer L. Miskimins,Brian F. Towler,Saad A. Balhasan
• Published date: 01 June 2013
• DOI: http://doi.org/10.1111/opec.12000
• Date: 01 June 2013

Modifying the Libyan fiscal regime to

optimise its oil reserves and attract more

foreign capital part 1: LEPSA I proposal

Saad A. Balhasan,* Brian F. Towler** and Jennifer L. Miskimins***

*PhD candidate, Chemical and Petroleum Engineering Department, University of Wyoming, College of

Engineering and Applied Science, Department of Chemical & Petroleum Engineering Dept. 3295. 1000 E.

University Avenue Laramie, WY 82071, USA. Email: sbalhasa@uwyo.edu; sbalhasan@yahoo.com

**Professor of Chemical and Petroleum Engineering, CES Fellow for Hydrocarbon Energy Research,

University of Wyoming, Laramie, WY, USA

***Associate Professor, Petroleum Engineering Department, Colorado School of Mines, Golden, CO, USA

Abstract

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 regimeand will provide an incentive for foreign oil com-

panies to investmore 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 recover-

able reserves and will subsequently improvethe 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 considera-

tion 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 modi-

fying 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. Wecall this new agreement the Libyan Exploration and Produc-

tion Sharing Agreement I.

220

© 2013 The Authors. OPEC Energy Review © 2013 Organization of the Petroleum Exporting Countries. Published by

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Nomenclature

A The A value at the indicated ratios of the cumulativevalue

of petroleum received by second party overthe cumulative

petroleum operations expenditure by the SP

B The B value at the indicated levels of the average total

daily production of oil and LHP

C Constant of proportionality, %

CAPEX Capital expenditure, US$

CAPEXincremental Incremental capital expenditure, %

CAPEXinitial Initial capital expenditure, US$

CAPEXSR% Capital expenditure of secondary recovery,%

CAPEXTR% Capital expenditure of tertiary recovery, %

$CAPEXinitial Initial capital expenditure, US$

$CAPEXSR Capital expenditure of secondary recovery,US$

$CAPEXTR Capital expenditure of tertiary recovery,US$

CO Cost oil, %

COR Cost oil revenue, US$

DS Development share, %

FP NCF (t) First party net cash flow at yearn, US$

FPS First party share, %

Gp Gas production, cu m/d

HCPVI Injected hydrocarbon pore volume

LHP Liquid hydrocarbon by product

LHPp Liquid hydrocarbon by product production, mb/d

Np Oil production, mb/d

NpbBonus of oil production, US$

OPEX Operating expenditure, US$

$OPEXSR Operating expenditure of secondary recovery,US$

$OPEXTR Operating expenditure of tertiary recovery,US$

OPEXSR% Operating expenditure of secondary recovery,%

OPEXTR% Operating expenditure of tertiary recovery, %

P Probability, (%)

Pg Gas price, US$/cu m

Plhp Liquid hydrocarbon by product price, US$/b

Po Oil price, US$/b

Por Reference oil price, US$

POS Probability of success, %

Pot Oil price at time, US$

LEPSA I proposal 221

OPEC Energy Review June 2013© 2013 The Authors.

OPEC Energy Review © 2013 Organization of the Petroleum Exporting Countries