US Website Reveals Production Sharing Agreements Between Libya’s National Oil Corporation and Foreign Companies

The U.S. website Discovery reported on Tuesday that production sharing agreements in the oil and gas exploration sector are contractual arrangements designed to separate the financial risks of exploration from ownership of underground resources.

Under this framework, foreign oil companies finance and carry out all exploration and development activities. Once commercial production begins, the company recovers its costs from a designated portion of production, commonly known as “cost oil.” The remaining production, known as “profit oil,” is divided between the National Oil Corporation of Libya and the foreign partner according to a formula negotiated during the contracting stage. This formula typically includes variables such as production volumes, prevailing oil prices, and cumulative investment levels.

The website noted that this structure is particularly suitable for exploration and production environments in frontier areas and post-conflict regions because it transfers initial capital risks to the foreign partner while preserving the state’s full ownership of underground resources throughout the contract period.

For governments with limited financial capacity, as was the case in Libya during periods of political fragmentation, production sharing agreements provide access to international capital and technical expertise without requiring direct sovereign investment in high-risk exploration activities.

Libya’s Legal Framework: The National Oil Corporation as the Mandatory Gateway

The U.S. website stated that, under Libyan law, the National Oil Corporation serves as the exclusive state authority overseeing all exploration and production activities in the oil and gas sector.

Foreign companies cannot operate independently in this sector, and all commercial arrangements—including production sharing agreements focused on exploration, joint development projects, and technical service contracts—must be conducted through the contractual framework of the National Oil Corporation.

This regulatory role gives the corporation significant negotiating power regarding financial terms, operational conditions, and revenue-sharing structures. It also makes institutional stability a critical factor in enforcing contracts.

According to the website, the National Oil Corporation’s dual role as both a sovereign regulatory authority and a commercial partner creates a structural dynamic that foreign investors must carefully navigate.

On one hand, the corporation provides a single, technically capable entity with clear authority over licensing decisions at early stages. On the other hand, this concentration of responsibilities also concentrates institutional risks, meaning that any political interference in the corporation’s management directly affects the reliability and clarity of existing contractual arrangements.

What Is a Production Sharing Agreement in Libya’s Oil Sector?

The website explained that a production sharing agreement in Libya is a contractual arrangement between the National Oil Corporation and foreign energy companies, under which foreign companies finance and conduct exploration and development activities.

If commercial production is achieved, the foreign company recovers its costs from a portion of production known as “cost oil.” The remaining “profit oil” is then shared with the National Oil Corporation according to a previously agreed formula.

The legal ownership of underground resources remains with the National Oil Corporation throughout the duration of the agreement.

Which Companies Signed Production Sharing Agreements with Libya’s National Oil Corporation in June 2026?

The website added that following the 2025 licensing round, production sharing agreements with foreign companies were formally structured with companies including Repsol, Petroliam Nasional Berhad (Petronas), Eni, and QatarEnergy, involving joint arrangements between Italy, Qatar, and Spain, as well as a three-party consortium comprising several oil investment groups.

Can Libya’s Exploration and Production Sector Compete with Other Regional Markets?

The website stated that Libya offers a combination of large oil field areas, historically low extraction costs, and geographic proximity to European markets, giving it genuine competitive advantages compared with some regional counterparts.

However, these advantages are partly offset by significant geopolitical risks, fragile infrastructure, and contractual uncertainty resulting from the current situation, which includes the existence of two competing governments.

According to the website, international companies have sought to manage these additional risks through force majeure clauses, international arbitration provisions, and phased investment structures rather than avoiding Libya entirely.