National Oil Corporation Business Information, Profile, and History

Company Perspectives:

NOC is carrying out exploration and production operations through its own affiliated companies, or in participation with other companies under service contracts or any other kind of petroleum investment agreements. This is in addition to marketing operations of oil and gas, locally and abroad. For this purpose, NOC has its own fully owned companies which carry out exploration, development and production operations, in addition to local and international marketing companies. NOC also has participation agreements with specialized international companies. Such agreements have developed into exploration and production sharing agreements, in accordance with the development of the international oil and gas industry, and international petroleum marketing.

History of National Oil Corporation

The National Oil Corporation of Libya (NOC) is a state-owned company that controls Libya's oil and gas production. The company is the biggest oil producer in Africa. Linoco's main export market is Italy, followed by Germany, Spain, and France. The company is rich in reserves and also controls unexplored land presumed to be rich in oil. The Libyan National Oil Corporation (Linoco) was created under Law No. 24 of March 5, 1970. It replaced the older Libyan General Petroleum Corporation (Lipetco) with a new national oil company. Its mandate, similar to Lipetco's, was "to endeavor to promote the Libyan economy by undertaking development, management and exploitation of oil resources ... as well as by participating ... in planning and executing the general oil policy of the state." The fortunes of NOC, therefore, cannot be separated from those of Libya, since the corporation acts as a government instrument of control, supervision, and participation in the oil industry and particularly in its relations with other oil companies. The company suffered from a lack of foreign investment through most of the 1990s because of United States and United Nations sanctions against Libya, which was accused of backing terrorists and shielding men accused of blowing up Pan Am Flight 103 over Locherbie, Scotland, in 1988. As the Locherbie case wound down in 2003, Libya expected a new round of foreign investment in its oil fields in the mid-2000s.

Lipetco in the 1960s

The role earmarked for NOC was largely a product of the political and economic events of the 1960s and 1970s in Libya. During the 1950s, Libya was an impoverished agrarian economy practicing a near-subsistence level of agriculture. The discovery of oil and the application of the much-needed oil revenues to other sectors of the economy reversed this trend, and the economy attained growth rates as high as 20 percent a year in the 1960s. There was considerable readjustment in the structure of the Libyan economy, as the oil sector gained prominence and became the vehicle of growth for the economy as a whole. With oil revenues going straight to the government, the latter took the responsibility for planning expenditure derived from these revenues. The outcome was the creation, by royal decree, of the Libyan General Petroleum Corporation (Lipetco) in 1968.

The creation of a state-owned oil company allowed Libya to follow in the footsteps of other oil-producing economies, where control of such a revenue-generating resource lay with the government. Lipetco's first chairman and director general was Mohammed Jeroushi. The company was based in Tripoli but was physically distinct from the Ministry of Petroleum Affairs. NOC would be similar to its predecessor in that it, too, would function under the supervision and control of the Minister of Petroleum. There was very little difference between Lipetco and NOC in terms of responsibilities. It is quite probable that NOC was formed in 1970 to highlight the political change from a monarchy to a republican government.

In 1969, the monarchy in Libya was overthrown by a group of young army officers led by Colonel Moammar Khadafi. In the years immediately following the coup d'état, the government continued to follow the economic policies of the past. However, the new regime's espousal of the creed of self-reliance and socialism indicated that in the future the government would play a major role in economic policy. Planning, in other words, was to be more widespread, encompassing national issues rather than those of the oil industry alone. This became immediately apparent with a more aggressive policy on oil pricing and the structure of ownership in the oil sector. In May 1970, a series of cuts in OPEC-determined production levels was introduced to force up prices. This policy gained Libya influence in OPEC (Organization of Petroleum Exporting Countries), where its radical stance met with considerable support.

Simultaneously, agreements on ownership were initiated with foreign oil companies, mainly in the form of joint ventures. The first joint venture was signed between Lipetco and the French state companies, ERAP (later Elf) and SNPA (Aquitaine) in 1968. Subsequently, in June 1969, joint ventures were introduced with Royal Dutch/Shell, ENI's Agip subsidiary, and Ashland Oil & Refining.

Joint Ventures in the 1970s

Lipetco was reestablished as the Libyan National Oil Corporation (NOC) in 1970. Linoco's first chairman and director general was Salem Mohammed Amesh, who was subsequently replaced by his deputy, Omar Muntasir. The latter remained in charge until 1980. The law under which NOC had been established restricted new joint ventures with foreign firms to those in which the latter took on all the risks of the pre-commercial exploration period. Only contract-type agreements were authorized and NOC's share was fixed at a given percentage from the start of operations. Contract-type agreements referred to production-sharing agreements as opposed to those simply allowing exploration to proceed. Furthermore, in July 1970, a new law was passed which made NOC responsible for the marketing of all oil products in Libya. The Brega Petroleum Marketing Company, a subsidiary of NOC, was set up to carry out the marketing activities of NOC, and the marketing assets of all the foreign oil companies were nationalized.

NOC played a major part in the Libyan government's new strategy of higher oil prices and production-sharing. The strategy was to lead to confrontation with the foreign oil companies. Foreign oil companies that did not voluntarily surrender concessions as part of the new policy were forced by economic and political pressure to relinquish these in full to the government. These were then taken over by NOC.

Soon after its establishment, NOC signed a joint venture agreement with the U.S. Occidental Petroleum involving production-sharing. In 1971, NOC arranged a processing deal with Sincat of Italy for refining oil products for domestic consumption, thereby providing a cheap supply of oil for internal Libyan consumption. A joint drilling company was formed with Saipem, a subsidiary of the Italian ENI, in early 1972. NOC took over the production operations of the Sarir oil field after the nationalization of British Petroleum's Libyan concession in 1971 and the U.S. company Hunt Oil in 1973. Similarly, Phillips' Umm Farud field was taken over in 1970. Other fields taken over by NOC included Amoseas's Beida oil field in 1974 and Amoco's Sahabir oil field in 1976.

By April 1974, production-sharing agreements had been reached with Exxon, Mobil, Compagnie Française des Pétroles, Elf Aquitaine, and Agip. All these agreements provided for production-sharing on a 85-15 basis onshore and 81-19 basis offshore. Each agreement had commitments in terms of expenditure on exploration by the foreign company. Development costs incurred by NOC were reimbursable by the partner. By using the surplus funds and technical expertise of the foreign oil companies, the problem of stimulating investment in exploration was resolved.

By the mid-1970s, NOC was faced with complications as a result of legal actions brought against it by British Petroleum (BP) over claims of ownership. Fears of an oil price rise in 1973 had led to a demand for Libyan crude oil. However, BP's legal position had made buyers wary of purchasing oil over which NOC may not have had legal title. NOC compensated for this position by arranging barter deals with both France and Argentina. Eventually all the foreign oil companies in Libya, except BP, agreed to the conditions imposed by Libya of partial nationalization, and as a result NOC had a substantial surplus of oil to sell. This was because Libya received share entitlements from the foreign companies, giving it rights on production by the foreign companies. It was part of the policy of production-sharing introduced by the government of Libya. However, by 1974-75, declining oil prices and oil consumption led NOC to sell back its shares of production to companies which had agreed to the partial nationalizations. This amounted to about 425,000 barrels per day (b/d) from its entitlement. Overall, NOC produced about 281,000 b/d in 1975 and 408,000 b/d in 1976. It exported 908,000 b/d in 1975 and 1.2 million b/d in 1976. The topical status of NOC's dispute with BP gradually faded away, and BP, Libya, was nationalized in 1974, as were the American companies Amoseas, Hunt, and Atlantic Richfield. Complementing its upstream activities and acquisitions, NOC itself had built two refineries at Azzawia between 1974 and 1976, with a capacity of 120,000 b/d.

The 1970s were a decade of great corporate activity. It saw the further consolidation of NOC's power. Nationalizations, the seizing of company assets, and buying out company shares were among NOC's activities. Esso Libya agreed to sell its share to NOC in April 1974. It subsequently withdrew from its Libyan operations in November 1981 and reached a compensation agreement with NOC in January 1982. Esso Sirte companies, Esso's Libyan subsidiaries, also relinquished 51 percent of their shares to NOC. In November 1982, Exxon's share in Esso Sirte was purchased by NOC and formed into a subsidiary company, Sirte Oil Company. The largest oil company in Libya at the time of the nationalizations was OASIS. Shell's original share of 16.7 percent was seized by the government in 1974, giving the government of Libya 59.2 percent ownership of OASIS in the early 1980s. Occidental Libya had agreed to a 51 percent nationalization in August 1973. This gave NOC a 51 percent share in Occidental, Libya. Mobil-Gelsenberg was owned 51 percent by NOC, 31.85 percent by Mobil, and 17.15 percent by Gelsenberg, the West German refining and marketing company. Mobil, however, left in 1982. In this period, NOC held 81 percent of Elf Aquitaine.

Political Conflicts in the 1980s

The 1980s was a decade of emphasis on joint venture projects. However, it was also characterized by a conflict of interests between Libya and the United States. The latter had instituted sanctions against Libya, based on assertions that Libya was supporting international terrorism, which had seriously affected the operations of U.S. oil companies in Libya. The Libyan government responded by freezing the royalties of the U.S. companies, restricting the repatriation of profits, and threatening to take over the entitlement rights to production of these U.S. companies.

During the 1980s, Libya's oil interests became less insular and more outward-looking. Libya relaxed its confrontational attitude, and NOC entered into new production-sharing agreements with a number of companies to ensure partial control. These included Rompetrol (Romania) and the Bulgarian Oil Company in 1984-85. Other agreements were signed in 1988-89 with Royal Dutch/Shell, Montedison of Italy, the International Petroleum Corporation of Canada, INA-Naftaplin of Yugoslavia, and a consortium of companies comprised of ÖMV in Austria, Braspetro in Brazil, and Husky Oil of Canada. These new agreements included guarantees ensuring rapid payment by Libya to these companies for the development costs incurred. These guarantees represented an important change from earlier Libyan regulations on joint ventures. The change was designed to offset the U.S. sanctions by offering incentives in joint venture terms to other foreign companies.

In 1980, the Libyan Arabian Gulf Oil Company (Agoco) was established by NOC through the amalgamation of the Arabian Gulf Exploration Company, Umm-al-Jawabi Oil Company, and direct NOC exploration and production interests. By 1989, Agoco's production was 400,000 b/d, making it was the largest individual oil producer in the country. Agoco was wholly Libyan-owned and fit into the overall oil policy of the government, which was to initiate and invest in new projects while maintaining control. NOC was also instrumental in the policy of downstream expansion. It was one of the shareholders, together with the Libyan Arab Foreign Bank and the Libyan Arab Foreign Investment Company, in Olinvest, a Libyan holding company established in 1988 for investment purposes and intended to permit a high degree of integration all the way to end consumers. Furthermore, Olinvest was responsible for ensuring that the downstream activities continued and so invested in Italian and German refineries. By 1990-91, the company was handling some 400,000 to 450,000 barrels per day.

The Reagan administration had introduced economic sanctions against Libya in January 1986. The sanctions were in reaction to the bombing of a Berlin disco and banned all trade, import and export activity, and travel between the United States and Libya. The sanctions were renewed in December of 1988 following a review of U.S. government policy by Congress after two years. The immediate impact of the sanctions was on the production and financial operations of five U.S. oil companies: Marathon, Conoco, Amerada Hess, Occidental, and W.R. Grace. In June 1986, these five companies had a total production entitlement of 263,000 b/d. As a result of the U.S. sanctions, the holdings and entitlements of the U.S. companies were kept in suspension and their operations were handled by NOC. Much of the latter part of the 1980s was spent in negotiations between the U.S. companies and NOC over the treatment of their equity holdings. The U.S. companies had offered to return to Libya to meet their commitments with regard to capital expenditure but continued U.S. sanctions did not allow them to bring in new technology, equipment, and spare parts. Even an easing of the ban by the Reagan administration in early 1989 only allowed the companies to transfer their equities to a third party and did not change the core issue of a transfer of technology. Due to the lack of overall progress, some of the companies were willing to extend their suspended status until a more viable political solution could be found.

Under Abdallah al-Badri, the chairman of the NOC management committee until November 1990, a new policy was introduced for the 1990s. This focused on reducing the number of new projects and upgrading the existing facilities of the national oil producers. NOC continued to make production-sharing agreements. New joint ventures were initiated between NOC and Veba, Petrofina, North African Petroleum Limited, and a consortium led by Lasmo and the Petroleum Development Corporation of the Republic of Korea. However, an additional emphasis was also placed on encouraging foreign companies to produce exclusively for export and on confining the sale of crude oil to a select number of national oil companies that already owned equity in Libyan production. This limited the crude being offered in the spot market through third-party traders and increased the input into Libya's downstream system. As a result, the national oil marketing company, Brega, ceased operating in 1990, and marketing became a responsibility of the National Oil Corporation itself.

Doing Business with Europe in the 1990s

Political relations between Libya and the United States worsened in the 1990s. In December 1988, Pan Am Flight 103 from London to New York blew up over Locherbie, Scotland. In 1991, the United States and Great Britain claimed that two Libyan men had carried out the bombing, and in 1992 the United Nations imposed new sanctions on Libya to pressure the government to extradite the suspects. The U.S. Congress then passed the Iran-Libya Sanctions Act in 1996, which extended the Libyan sanctions to firms doing more than $20 million of business annually in either Libya or Iran. The slow unwinding of the Locherbie case thus significantly impeded NOC's ability to do business around the world. Though the U.N. sanctions were less comprehensive than the U.S. sanctions, and NOC continued to work with several European companies, they apparently prevented NOC from obtaining needed technology. A reporter for the Washington Report on Middle East Affairs (November 2003) claimed that on a visit to Libya in 2000 "the whole country looked tired and run-down. No new computers could be acquired because every computer has at least one American component. The oil industry is limping along."

Yet NOC continued to maintain close relationships with some European companies. The largest foreign operator in Libya in the 1990s was the Italian firm Azienda Generali Italiana Petroli S.p.A., known as AGIP. In the mid-1990s, AGIP and NOC undertook the joint development of NOC's Bouri Field gas field, building a gas treatment and separation facility and starting work on a 1,040 kilometer undersea gas pipeline to Italy. NOC also continued to do business with other European oil companies, including Elf Aquitaine and Total of France, Spain's Repsol, the Austrian firm OeMV, and the German companies Veba AG and Wintershall AG. A consortium of other European companies also began development of NOC's Murzak Field in 1994 and began exporting oil from that field in 1996.

Improved Libyan Relations in the 2000s

United Nations sanctions against Libya were suspended in 1999, when the country agreed to extradite two men accused of planning the Locherbie bombing. Libya began revising its key petroleum regulations that year, and it held 137 blocks of acreage open to foreign oil companies for exploration. However, it took several years to iron out the new regulations. In 2001, NOC executives claimed to be negotiating foreign contracts on a case-by-case basis in the absence of the promised new petroleum legislation.

Then, in 2003, the Locherbie case seemed to come to a close when the Libyan government accepted responsibility for the bombing and set up a fund to compensate victims. The United Nations lifted its sanctions (as opposed to the earlier suspension) in 2003, though the United States sanctions remained in place until April 2004. Some doubt remained over the Locherbie case, and some parties close to the proceedings believed that Libya had accepted responsibility for the bombing merely as an expedient to get the sanctions lifted. Libya's foreign minister revealed in 2003 that the country's goal was to increase oil production from 1.2 million to three million barrels a day over the next 15 years. To do this, it was essential to broaden NOC's contacts with foreign oil companies. Toward that end, in 2003, NOC signed agreements with Austrian energy company OMV and Repsol of Spain, allowing those companies to explore for oil and gas in Libya both onshore and off.

In the spring of 2004, Libya seemed to come in from the cold when it made amends with Britain and the United States, promising to cease the pursuit of weapons of mass destruction. British Prime Minister Tony Blair met with Libya's Khadafi in March 2004, and a few weeks later NOC officials traveled to Houston, Texas, to meet with U.S. oil company executives. At that time President George W. Bush lifted the sanctions against Libya that had been in place for some 22 years. Libya was then able to sell oil to the United States, and U.S. oil companies were then able to invest in Libyan operations. The company opened leasing to U.S. corporations in the summer of 2004. NOC revealed that it had run short of drilling rigs in 2003 and was more than eager to attract new foreign investment. In 2004, NOC's estimated crude oil output was 1.23 million barrels per day. The company hoped to raise its production to two million barrels per day by 2007. It had more than 250 blocks of land to be leased for exploration. In 2004, NOC seemed to have turned a crucial corner in its history. The company was again able to look outward and to embrace many new corporate partners.

Principal Subsidiaries: Arabian Gulf Oil Company; Waha Oil Company; Sirte Oil Company; Oilinvest; Zawia Oil Refining Company; Hamada Pipeline Company; Jowfe Oil Technology Company; Brega Petroleum Marketing Company; Zuetina Oil Company.

Principal Competitors: Nigerian National Petroleum Corporation; Cathargo Oil Company Tunisia.

Chronology

• Key Dates:
• 1968: Libyan General Petroleum Corporation (Lipetco) is founded by royal decree.
• 1969: The Libyan monarchy is overthrown in a coup led by Colonel Moammar Khadafi.
• 1970: The company is reestablished as Libyan National Oil Corporation (NOC).
• 1980: Libyan Arabian Gulf Oil Company (Agoco) subsidiary is established.
• 1986: U.S. sanctions against Libya begin.
• 1999: United Nations suspends its sanctions against Libya.
• 2003: United Nations sanctions are lifted, and NOC enters licensing agreements with European companies.
• 2004: U.S. sanctions are lifted.