Indian companies are stepping up to continue interrupted business on Libyan soil. Let’s investigate the opportunities and risks.
A recent trend of state-owned Indian Oil companies interested in international investments appears to show synced interests when choosing the target: Libya and Venezuela. The former shows signs of being ready to welcome back international companies and rebuild its infrastructure by capitalizing on its number one asset. Libya is still not united; the division between the West and East persists. However, Tripoli allegedly perceives the recent tendencies as favorable enough to revitalize its energy industry and, through it, the country. For oil and gas companies, historic as well as recent tendencies will need to be measured upon deciding to (re)enter. Libyan crude oil has always had a low sulfur content and is a relatively cheaply extracted asset, and the country’s gas reserves have been a geographically advantageous choice for Europe. Recent decisions by OPEC to hold back daily production by 2.2 million barrels and stabilize the price of Brent around $80-82 certainly involved Libyan support. Still, as the country standardized its average daily production to above 1.2 million barrels by August 2022 and openly calls for foreign companies to explore new sites, it is highly unlikely that those decreased barrels will be coming from Libya. One cannot disregard current policies and developments to decrease geopolitical vulnerability while also complying with decarbonization in Europe, which does not qualify Libyan gas assets as obsolete but perhaps puts downside pressure on their price and may imply an alteration of export destination, too. However, just like in the case of oil, India may very well be a partner in this.
Background on Historic and New Targets
Libyan ties to Oil India Limited can be traced back to 1992 when the state-owned company executed a multi-location entry to the Qadhafi-ruled country’s hydrocarbon sector by acquiring predominantly upstream assets. Over the years, Libyan crude imports to India have multiplied many times. Besides the production volumes, the price of Brent crude was also on a steep rise from the mid-2000s, and Libyan basins became more and more profitable within OIL’s portfolio. However, the extension of region-wide events to Libya in the early 2010s and the subsequent atrocities harmed business to the extent that OIL quit the country. Additionally, hydrocarbon assets have officially been frozen later, which legally turned off any related activity. The current state of the North African country is a topic of complexity; the past thirteen years’ events suggest any minor and fragile development needs to be appreciated and not taken for granted. Still, the country appears to carry some positive signs that allegedly convinced OIL to invest and re-initiate drilling. This is welcomed and supported by the Tripoli government as well as the Libyan National Oil Corporation (NOC), which is currently attempting to lure additional foreign investments by creating more attractive conditions. However, there are further state-owned Indian companies with an extensive range of capacity for conducting exploration and production activities – for instance, Oil and Natural Gas Corporation (ONGC) and Indian Oil Corporation (IOC) – both seeking to invest in Libya, as well as in Venezuela, at the moment.
Precisely, the current Libyan re-entry strategy of OIL involves resuming operations during the next financial year – which begins on 1 April – in the block area 95/96 located in the Ghadames Basin (south of Tunisia, approximately 650 kilometers southwest of Tripoli), a site of immense gas and marginal oil resources that OIL originally co-discovered and in which it has a 25% participating interest (PI), just like IOC, while Algerian Sonatrach International Production and Exploration (SIPEX) holds the remaining 50%. As part of the minimum work program (MWP) in the contracts of these companies, eight wells could be drilled within the area, out of which five and a half have already successfully been completed. It comes as no surprise that the consortium considers massive potential in its unfinished business in Libya and read recent signs sufficiently reassuring to re-up its presence within the country. These intentions are legally backed up with the amendment attached to the initial Exploration & Production Sharing Agreement (EPSA), which has already expired but was extended in order to achieve the mutual goals.
Market Reaction
The official confirmation of the OIL chairman on the matter – as well as the other potential overseas investments combined with the strong resiliency of risk management of the company – was very positively received by the market; in fact, the company’s shares have immediately jumped by 12.4% to a record high of 516.4 rupees, and the steep increase continued to 592 rupees by the time of writing these lines. Contrastingly, ONGC and IOC shares have also increased but in a rather reversed manner compared to OIL.
For ONGC, block 81/1 within the Ghadames basin and block 102/4 in the Sirte basin are the main sites where it has unfinished business, but other and soon-to-be licensed sites could also be of interest as the NOC prepares for oil and gas rounds still within this year. It seems clear that international oil and gas companies are welcome once again in Libya. Still, it has also been articulated on various platforms that exploration activities are preferred over already proven production sites. This will primarily concern newcomers to the Libyan ground as earlier signed and still valid contracts will certainly need to be complied with. The good news for investors is that Libya holds one of the highest proven reserves of hydrocarbons on the planet, and allegedly, one-third of the territory under the Tripoli government’s control has yet to be explored.
Rebuilding through Oil and Gas
Hydrocarbons undoubtedly represent the path to restoring the economy and infrastructure to a functioning state. Still, it must be noted that political and military trenches have not disappeared from the ground, even if recent tendencies show an improvement compared to earlier ones. Restoring the oil and gas infrastructure has also been a topic for the past decade, but it has never quite seemed a reality. Notwithstanding, Libya has been producing oil steadily since last summer, and even if the figures fall short of about 40% compared to the pre-conflict economy, they can provide meaningful support to government policies. Related announcements in the coming months will provide a good indicator. Until then, though, foreign companies’ investments within the hydrocarbon sector will most likely be the focus, which can be aided by European diversification goals regarding oil imports.
However, this is not without challenges and risks. As the facts mentioned above suggest, stability in Libya is still far from achieved, which means there is a certain level of danger that current investments will not be compensated in the short run. The other factor relates to the sector’s governance, which is often attached to notoriously corrupted individuals. Even though several major European companies hold onto their interests in Libya, they have not withdrawn from the country like ExxonMobil or Shell. The list contains Eni, Total, Repsol, BP, and OMV, to name the biggest ones. And while other, non-European, companies also expressed their interest, it will all come down to each of their own risk-assessment and negotiation with NOC. Indian companies have led the way, and the coming months will show the approach of others.
