Written by oil and economic expert Abdulmonsef Al-Shalawi
A national, economic, and technocratic reading of the future of exploration and production contracts
Since the discovery of oil in Libya in the late 1950s, the oil sector has remained the backbone of the national economy and the main source of the state’s financial and sovereign strength. Despite the profound political and economic transformations the country has gone through, the National Oil Corporation (Libya) has remained one of the few institutions that has largely preserved a degree of professionalism and technical and operational continuity.
However, the question that imposes itself today is no longer only: how do we increase production? but also:
Is the current contractual framework, known as EPSA contracts in their latest form, still capable of keeping pace with regional and global changes? Or is it time for a comprehensive and balanced revision that preserves state sovereignty while attracting investment?
First: What are the main global oil contracting models?
The global oil industry relies on several contractual frameworks between resource-owning states and international oil companies, the most important of which are:
1. Traditional Concession Agreements
This is the oldest model, where the state grants a foreign company exploration and production rights in exchange for taxes, royalties, and fees.
This model was widely used before the nationalization waves of the 1960s and 1970s, but was often seen as giving foreign companies extensive control over national resources.
2. Production Sharing Agreements (PSA)
Today’s most widely used model, especially in developing and emerging producer countries.
The foreign company bears exploration and financing risks. Once a discovery is made, costs are recovered from production, and profits are then shared between the state and the company according to agreed percentages.
3. Service Contracts
The company performs exploration or development work in exchange for a fixed fee or performance-based payment, while ownership of the oil remains entirely with the state.
This model is used in countries such as Iraq and Kuwait in varying forms.
4. Hybrid and flexible models
In recent decades, more flexible structures have emerged, combining production sharing, service elements, and tax incentives, especially due to rising exploration risks and the complexity of offshore and unconventional projects.
Second: What about Libya? How have its contracts evolved?
Libya has gone through several historical phases:
Pre-nationalization concession era
In the 1960s, concession contracts were dominant, as Libya needed capital, technology, and expertise.
Post-nationalization and sovereignty strengthening phase
After the 1970s, Libya moved—like many producing countries—toward stronger national control over resources and developed stricter models for foreign companies.
The emergence of EPSA contracts
Short for Exploration and Production Sharing Agreement, which went through several versions:
- EPSA I
- EPSA II
- EPSA III
- EPSA IV
EPSA IV became the most widely used version, especially after 2005 licensing rounds.
Why was EPSA IV successful at the time?
Objectively, EPSA IV was introduced during a period when:
- Oil prices were relatively high
- Libya had promising low-cost reserves
- Political risk was comparatively limited
- Global companies were competing aggressively
- Global demand for oil was growing rapidly
This allowed Libya to secure relatively strict financial terms and a high state share of revenues—some even considered Libya’s take among the best globally at the time.
But the key question is: does what worked yesterday still work today?
Third: Why is revisiting EPSA now necessary?
1. Changing global investment conditions
International oil companies are now more selective due to:
- Energy transition pressures
- Climate finance constraints
- Higher capital costs
- Global competition for investment
- Lower risk appetite
In short: global oil capital no longer moves as it did 20 years ago.
2. Higher risks in Libya
Investors now consider:
- Political stability
- Legal clarity
- Fiscal stability
- Security of facilities
- Independence of the oil institution
- Sovereign decision stability
Old contractual frameworks may no longer be sufficient to attract investment under current conditions.
3. Regional competition is intensifying
Neighboring countries are moving rapidly:
- Algeria is continuously updating oil legislation
- Egypt offers new incentives, especially for gas
- Eastern Mediterranean states attract major investments
- Africa is experiencing an exploration race
Capital compares opportunities continuously.
4. The global time factor is critical
The world is shifting toward:
- Decarbonization
- Electric vehicles
- Renewable energy
- Green hydrogen
- Reduced fossil fuel dependence
Oil and gas will remain important for decades, but the window for maximizing hydrocarbon value is narrowing.
Fourth: Does this mean giving up state rights?
Absolutely not.
A responsible national approach does not mean relinquishing sovereignty.
The difference is between:
- Protecting state rights
and - Freezing the sector with outdated models that reduce competitiveness
Economic wisdom lies in maximizing long-term national value.
Sometimes:
A smaller share of a successful project
is better than
a large share of a project that never happens.
Fifth: What could Libya propose today?
The most logical approach would be to develop a new flexible Libyan contractual model, not necessarily abolishing EPSA entirely.
Key elements could include:
- Maintaining national sovereignty
- Introducing economic and investment flexibility
Risk-based financial systems
Different basins should not be treated equally (low-risk vs high-risk areas).
Dynamic contracts linked to oil prices
State share increases when prices rise, and flexibility is granted when prices fall.
Exploration performance incentives
Link acreage retention to mandatory work programs and timelines.
Stronger focus on gas development
Gas is becoming a transition fuel globally, and Libya has underdeveloped potential.
Real local content integration
Including training, technology transfer, local services, and private sector development.
Sixth: Do current Libyan laws allow this?
The main oil law dates back to 1955 with amendments. While advanced for its time, it no longer reflects:
- Modern financial systems
- Industry complexity
- Governance standards
- Transparency requirements
Reform is needed—but cautiously.
Not demolition, but structured modernization covering:
oil law, investment law, taxation, partnerships, dispute resolution, and governance.
However, political conditions remain a key constraint.
Seventh: What does Libya really need today?
Not just new contracts, but:
- A unified national energy vision
- Stable oil institutions, free from political conflict
- Clear governance and transparency
- Acceleration of stalled projects
- New exploration rounds under modern frameworks
Conclusion
Yes—EPSA’s current model likely needs revision, not because it failed, but because it succeeded in a very different era.
The goal is not ideological rigidity or unconditional openness, but a smart national model balancing:
- Sovereignty
- Investment attraction
- Exploration acceleration
- Revenue maximization
- Intergenerational equity
Libya still holds one of the world’s most important hydrocarbon basins, low production costs, and a strategic location near Europe.
But resources alone are not enough.
The real challenge today is no longer just production—it is time, governance, legislation, and a national vision capable of transforming natural wealth into sustainable economic power for decades to come.
