French major Total agreed on 2 March to pay $450mn for US firm Marathon’s 16.33% of Libya’s Waha JV (MEES, 9 March). The two firms closed at the end of the month. “It is done. Today the shares of Marathon in Libya are in Total,” CEO Patrick Pouyanné told his company’s 26 April earnings call.
“We advised the Libyan authorities far in advance that the deal had been settled between Marathon and Total, that we were intending to close it by the end of March… We wrote them again before. There was no objection. And so we decided to close,” Mr Pouyanné says, adding that “legally” there was no need to “request formal approval.”
But NOC begs to differ. A 23 April statement on its website asserts “Marathon did not obtain the approval of NOC.” NOC chair Mustafa Sanalla adds that “Any deal of this kind should be approved by the National Oil Corporation and the Libyan authorities… Any attempt to conclude the deal before obtaining such approvals is a breach of the concession agreement.”
Mr Pouyanné suggests that it was perhaps the deal’s bargain-basement price that caught NOC’s eye: “the cost of access to this barrel was quite attractive because of the political situation. Maybe it creates… in Libya… when they discovered the value of the deal, part of the difficulty.”
Mr Pouyanné says Total has bagged 500mn barrels of reserves and 50,000 b/d of output at “around $1/B like in Abu Dhabi.” CFO Patrick de la Chevardière adds that “the barrels in Libya are very profitable actually… at $60/B between 15% and 20%.” “Total can accept this type of Libyan risk in our portfolio more than Marathon… because of [our] very large portfolio,” Mr Pouyanné adds.
NOC's recent statement came as “no surprise” to Total, Mr Pouyanné says. “When we closed the deal… we [were] not naive about the tricky political solution there.” It is not entirely clear to what he is referring – whilst lines of political control in Libya are sometimes unclear, Mr Sanalla is the country’s undisputed oil supremo. The internationally-recognised parliament in Tobruk, the House of Representatives, has opposed the deal, as has a Waha workers’ union.
That said, given that Marathon and its compatriots ConocoPhillips (16.33%) and Hess (8.16%: NOC has the remaining 59.18%) were offered special terms as part of their 2005 deal to re-enter Libya, it is not surprising that NOC objected to the presumption that this exception to Libya’s normal concession terms was transferable. Notwithstanding Total’s notifying the “Libyan authorities” (though perhaps not Mr Sanalla), the companies’ rapid completion of the deal perhaps suggests a desire to create a fait accompli – after all, Libyan bureaucracy is not known for its speed and agility.
Libya’s Waha Fields: Oil Output At 5-Year High Of 245,000 B/D In Q1, Gas At An All-Time High
COMPROMISE: MORE INVESTMENT?
The last line of the NOC statement suggests the likely form of a compromise agreement with Total. “In order to obtain NOC approval this transaction must be in the best interests of the Libyan people, taking into account… future investment requirements,” the statement adds. Also of note is that it is Marathon, not Total, that NOC directly criticises.
In seeming response to this, Total’s Mr Pouyanné says that “[We] have a permanent open dialogue with the Libyan authorities. We will… reassure them [of our] willingness to develop the oil field in the national interest of Libya.”
Indeed Total’s other statements suggest that it will be more gung-ho on investment in Libya than either Marathon or its extant US partners.
Straight from the off Total is demonstrating that it is less conservative on Libya than its US partners. Whilst Conoco and Hess (and hitherto Marathon) have since 2011 habitually excluded Libya from their output guidance, Total’s Mr Pouyanné says his firm has no intention of doing likewise.
Libya, at 80,000 b/d net, now represents 5% of the company’s total liquids output. “Yes, it’s taken into account the 6%-plus [guidance for 2018 output growth]. We know [Libya output is] erratic… but I see more upside than downside. It’s a country that today produces less than 1mn b/d with the potential of 2mn b/d,” he says.
“When you think of this concession of Waha, the potential to increase production is huge, [we] can double the production there. So yes, it’s erratic today, but it’s erratic on the low side, I would say. There is more of an upside potential [than a] downside.”
Initial signs of upside came with Q1 Waha oil output, which at 245,000 b/d, was the highest since 1H 2013: gas output of 190mn cfd was at an all-time high (see chart). These figures are based on the Q1 filings of ConocoPhillips, which like Total/Marathon has a 16.33% stake. Conoco’s net Q1 figures were 40,000 b/d and 31mn cfd.
That said the net output figure of 50,000 b/d given by Total (equating to 306,000 b/d gross) looks over-optimistic (at least in the near term) as this level was last hit in Q4 2008.
Marathon, Conoco and Hess (then Amerada Hess) originally entered Libya as the Waha (Oasis) consortium in 1956 with production starting in 1962. But the US firms quit the country in 1986 amid mounting Reagan-era sanctions. They re-entered on 1 January 2006, essentially keeping the same conditions they had originally enjoyed. In the meantime Libya had tightened its contractual terms to the much tighter ‘EPSA-4’ model.
By 2009 Waha and Germany’s Wintershall were the only foreign operators to have escaped ‘upgrading’ to the new terms and were coming under increased pressure to do so (MEES, 9 March 2009). Whilst Libya has clearly had other priorities in the wake of the early-2011 revolution, NOC has in recent months stepped up its pressure on Wintershall to agree to new terms (MEES, 10 November 2017).
Whilst there has been little recent talk of the Waha partners coming under similar pressure, it would have been surprising if Marathon had been allowed to transfer these privileged terms to another firm without this catching NOC’s eye. “The terms of the concession did not change” upon Total’s entry, Mr Pouyanné confirms.
