Oil companies interested in investment opportunities in Libya must be aware of what remains of US sanctions, and oil companies interested in doing business in Iraq await the establishment of a transparent legal framework there.
During a regular monthly energy industry briefing, Vinson & Elkins LLP attorneys recently updated clients about issues regarding Libya and Iraq.
The United Nations sanctions against Libya were lifted in September 2003. In December, Libya said it had abandoned efforts to acquire nuclear, chemical, and biological weapons.
US-Libyan relations, meanwhile, are thawing with the recent lifting of most US sanctions against that nation, attorneys said (see related story, p. 36).
Meanwhile, the Iran Libya Sanctions Act is set to sunset in August 2006. Some in the US Congress want to repeal it, but others want it strengthened (OGJ Online, Oct. 22, 2003).
Libya is an active participant of the Arab boycott of Israel. US law prohibits companies from activity that supports boycotts not sanctioned by the US government, including the Israel boycott.
"US companies pursing investment opportunities in Libya need to be well-versed on the requirements of the US antiboycott laws and implement an active compliance program," V&E attorney Chris Strong in Dubai said during an Apr. 15 teleconference with V&E's Houston, Dallas, and Washington, DC, offices.
The US Department of the Treasury's Office of Foreign Assets Control (OFAC) regulates companies doing business internationally. Regulations include the Libyan Sanctions Regulations of 1986.
Libya
"Until these sanctions are lifted, or specific licenses are granted by OFAC, US companies cannot do business in Libya," Rindala Beydoun of V&E's Dubai office said.
On Feb. 26, OFAC issued a license authorizing US citizens to travel to Libya, and several US companies were granted specific licenses to open offices there or enter into negotiations with Libyans, she said.
Without an OFAC license, US citizens traveling to Libya may not negotiate terms of an agreement, and they also may not enter into any preliminary agreements that are contingent on the lifting of sanctions, she said.
Beydoun said Libya's energy sector appeals to international investors because it offers low operating costs, light sweet crude oil, proximity to large European markets, and a well-developed infrastructure.
Libya revived its Energy Ministry office last December after a 5-year lapse, she said.
Currently, it's unclear what responsibilities fall under Energy Minister Fethi Omar Chetwane and what responsibilities fall under the government-owned National Oil Co. (NOC).
Libya is offering 116 oil exploration blocks by way of open bid round, and the vast majority has not yet been awarded, she said.
Strong said that Libya allows exploration and production sharing agreements (EPSAs) with international companies.
There already have been three generations of EPSAs, and EPSA IV was expected to be released by Apr. 30, according to Strong.
EPSA IV is intended to address contentious issues in EPSA III negotiations, he noted.
EPSA III calls for international companies to operate under the supervision of a management committee composed of two NOC representatives and one company representative.
Management committee decisions are made by majority vote, he said. EPSA IV calls for unanimous voting rather than majority voting, he said.
"NOC currently anticipates launching the first bid round under EPSA IV starting by the end of the second quarter. The current NOC position is to launch the bid round regardless of whether US sanctions have been lifted and whether US firms will be able to participate," he noted.
Iraq
V&E attorney James L. Loftis of Houston noted that although "the Coalition Provisional Authority has made a tremendous amount of very important data easily accessible, interpretation of some of the most critical pieces of these data," such as whether the CPA's recent Order 71 on local governmental authorities will succeed after the CPA withdraws, "requires a huge amount of cultural and historical information that is difficult for a non-Arabic-speaking Westerner to achieve."
In addition to the continuing insurgency and bloodshed in Iraq, Loftis said that the governing council remains in political turmoil. "But at a different level, a level below the council, they have succeeded in creating the rudiments of a functioning government. It may not be efficient, it may not be comprehensive, but they have staffed functioning ministries in most areas of the public life."
Constitutional reform is evolving, he said, adding that 90% of Iraq is subject to some form of local authority aspiring to exercise control. This is resulting in at least temporary reforms for various sectors, including foreign investment, he said.
"Almost all of the reforms attempted by these CPA orders are remarkably simple in their execution," Loftis said. "But the big question is: Will any of these things be here in a year?" he asked, noting that there is no official Iraqi government.
"Certainly, the interim constitution will be swept aside at some point," Loftis said, but he noted that the interim constitution "doesn't go away on June 30. It goes away when it is replaced. The interim constitution—and the CPA Orders—will operate until the constitution is replaced. It will not simply disappear."
"For each day that goes by, a successful legislative reform is much more likely to become accepted as law," he said.
Most international investors believe that "no sovereign, no deal," he said, adding that most V&E clients are still on the sidelines trying to prepare themselves for the day when there exists a transparent legal framework for doing business in Iraq.