By Muhammed Jetutu, in Cairo
After years of delay and drawn-out negotiations over fiscals, Italian major ENI has, with Libya’s National Oil Corporation, NOC, taken the Final Investment Decision to develop the Structures A&E, the country’s first major project since the early 20-noughties.
It involves development of two gas fields – the A and E structures – located in contractual area D, offshore Libya. First gas from the two clusters is targeted for 2026 and will reach a combined plateau production of 750Million cubic feet per day (750MMscf/d).
Structure A is located in the central part of Block NC41, approximately 75 kilometres from the Libyan coast in a water depth of between 93 and 145 metres. Structure E is sited in the central-eastern part of Block NC41, approximately 125 kilometres from the Libyan coast in a water depth of between 205 and 235 metres.
ENI has been in talks with NOC over the development for 15 years and, with political and security challenges in Libya in the last 12 years, the Italian firm’s enthusiasm had waned. The decision to finally go ahead was determined over meetings at which far reaching fiscal terms were negotiated and agreed between the two parties in August 2022.
Structure E platform will handle output from 23 wells — including five subsea wells — with 600 MMscf/d of gas and 30,000 Barrels Per Day (BPD) of liquids sent via two pipelines to a facility at Mellitah on the coast. Meanwhile, some 160 MMscf/d of gas plus 12,000BPD of liquids from the eight-well Structure A wellhead platform is due to be exported to ENI’ss existing Sabratha platform via a multiphase pipeline
The Fiscal Terms
NOC presents, in detail, the history of the meetings that took place between the representatives of the company and those of ENI. “In the first meeting on 24 August 2022 with ENI’s management, NOC called on ENI to implement the project. ENI had initially slowed down (the stages of implementation) due to political and security concerns. After several meetings, ENI accepted and asked for an agreement to be reached first to determine the costs”. Subsequently, “the company asked to change the cost recovery rate from 40 to 45 percent and a negotiating team was created (…)”. The parties “agreed to change the percentage (of cost recovery) from 40 to 38 percent, which decreases to 37 percent if the value of the project costs is within $7Billion and rises to 39 percent if it exceeds $8Billion.” Furthermore, as foreseen, the percentage is “30 per cent after ten years from the start of the implementation project”. The NOC reiterates that the percentages relate to the recovery of implementation costs and “not to the sharing ratio”. In addition, the NOC specifies that the “exploration expenses for offshore plants A and E, equal to $1.2Billion, were fully recovered before the project was implemented”.
THE FIELDS’ DEVELOPMENT will centre on two main platforms tied into the existing treatment facilities at the Mellitah Complex. The project also includes construction of a carbon capture and storage (CCS) facility at Mellitah, allowing a significant reduction of the overall carbon footprint, in line with Eni’s decarbonisation strategy.
NOC says that the project needed to be immediately implemented for a variety of reasons: “Gas production in the Al Wafa and Al Salam fields will start declining in 2025 by more than 440Million cubic feet per day, which will lead to a shortfall in the supply of gas for domestic consumption and, if this loss is not compensated with investments and increasing production, the Libyan state will be forced to import gas to power gas-fired power plants”.
NOC points out that “an investment of $8Billion will once again bring Libya to the fore and will attract investors from the oil and gas sector, which will lead to the progress of the economy, creating many job opportunities and increasing levels of income”. Thirdly, NOC considers that “the return that the Libyan state will obtain from this investment is estimated at $13-18Billion, after recovering capital and operating expenses”. Finally, “the announcement of this project will encourage contracting companies engaged in the exploration of exploration blocks, onshore and offshore, to start their activities”.
This story is a slight update from the article that appeared in the December 2022 edition of Africa Oil+Gas Report
