New EPSA bid round to be launched by the NOC: updated legal & commercial terms expected

Libya holds the largest reserves of hydrocarbons in Africa and the ninth largest in the world. In January 2024, the NOC announced its plan to launch a new EPSA bid round in the fourth quarter of this year after a hiatus of over 15 years in awarding new exploration licences. It is anticipated that the NOC will shortly be announcing the launch of the bidding process, after which pre-qualified bidders will be invited to the data room and have access to the EPSA model. We expect that while the bidding process will be similar to that used in the last round in 2007, the EPSA model will contain significant updates that will reflect the NOC’s desire to better reward IOCs’ investments and to align with IOCs’ regulatory compliance requirements.

BACKGROUND

Since the early 1970s, Libya has moved away from developing its rich petroleum resources through concession contracts which enabled the government to collect royalties and taxes from concessionaires under the Libyan Petroleum Law number (25) of the year 1955 (as amended) (Law 25). The shift from concession contracts saw Libya develop a new contractual framework (EPSA model) enabling the NOC to participate as first party in petroleum operations and share the production with second party IOCs.

Since then, the NOC has updated the EPSA model terms and conditions about every 10 years in successive rounds of inviting participants to a direct negotiation process. Each EPSA model update reflects the NOC’s “lessons learned” and adaptations to economic, geopolitical, and environmental changes and oil price fluctuations.

EXPECTED BIDDING PROCESS

We expect the NOC to again use the public tender process that was first adopted in late 2005, replacing the previous direct negotiation process. The process used in the 2005 and 2007 “auction style” competitive bidding between IOC’s for specific exploration blocks the technical details of which were made available in dedicated data rooms. The successful bidders were announced live on Libyan television in a ceremony that saw the opening of all bids submitted in sealed envelopes. The bid rounds were hailed by many at the time as being open, competitive and transparent, and attracted investment for IOC’s giants such as ExxonMobil, Chevron and Woodside, amongst others.

We also expect the NOC to work within Law 25, Article 5 requirements to streamline the qualification process to open it to more participants. The international energy landscape has shifted dramatically since 2007, and whilst many major IOC’s have engaged in M&A activities to consolidate assets and streamline their geographic footprint, we expect there to be increased interest from small to medium sized E&P companies, service companies and private equity investors to gain a foothold in the Libyan market.

EXPECTED EPSA MODEL UPDATES

Successful tender process participants will likely receive the NOC’s updated EPSA model that will govern the legal and commercial terms of the IOCs’ involvement. We expect the new EPSA model to build on the NOC’s experience of what is required to properly incentivise IOCs as well as easing IOC’s ability to meet regulatory compliance requirements.

For example, the new EPSA model should recognise the need for IOCs based in EU and OECD member states to adhere to evolving corporate finance reporting requirements. Similarly, the model should accommodate IOCs’ need to comply with environmental laws and regulations towards attaining green energy and decarbonisation of energy sources, especially in the EU. The commercial and fiscal terms should also remain favourable to IOCs’ rising costs of investments of decarbonisation and carbon credits rights.

In addition, IOCs face increasing regulatory burdens in relation to trade sanctions, anti-money laundering and anti-bribery and corruption, especially in transaction with public entity counterparties. Their ability to raise funds to finance their participation in EPSAs is dependent on convincing international investment bank risk committees that exposure to such risks is minimal. The new EPSA model should support IOCs’ ability to minimise exposure to such risks.

We expect that the NOC’s much-anticipated announcement of the first opportunity in over 15 years for IOCs to enter the Libyan market will induce tremendous interest in a high risk, high reward venture that will benefit both the IOCs and Libya. We look to the NOC to update both the bidding process and the new EPSA model with criteria that will incentivise additional IOC participation.

For more market updates, follow our LinkedIn page or visit our Insights page.