Modifying the Libyan Fiscal Regime to Optimise its Oil Reserves and Attract More Foreign Capital Part 2: Application to Project in Libya

Abstract

This paper extends the analysis of our proposed modification to the first model of Libyan Exploration and Production Sharing Agreement (LEPSA I) to field applications. Four decision‐making models are coded in a spreadsheet program to estimate profitability indicators for two development scenarios. These scenarios are primary and secondary recovery methods with water injection and enhanced oil recovery by injecting carbon dioxide. The paper concludes that the economic profit for the foreign investor (second party) under LEPSA I was improved compared with EPSA IV. Also, Libya increased its oil reserves with a reasonable decrease of its production share. Moreover, the results showed that the profit indicators under the current production shares (cost recovery) of the fourth model of Exploration and Production Sharing Agreement (EPSA IV) were not favourable to the second party. Because of that, the second party would not be motivated to make a decision to invest any money for an oil development projects in Libya. Finally, the paper investigates how EPSA IV should be redesigned to maximise the Libyan National Oil Corporation (first party) oil reserves and give more attention to the economic objectives of the second party.