By Dr. Mohamed Karbal, Managing Partner at Karbal & Co.
Dr. Mohamed Karbal is a New York lawyer and founding partner of Karbal & Co, a full-service international law firm with offices in Libya and Dubai that serves the needs of international and domestic client with their operations in Libya and the United Arab Emirates.
Libya Prior to the Discovery of Oil
During the twentieth century, Libya enjoyed only nineteen years of peace. Of only eight of the nineteen years, Libya enjoyed peace and the fruits of its oil production.
In 1951, Libya became the first country to gain independence through a United Nations resolution. At the time of independence, Libya was one of the poorest countries in the world. The Libyan economy during the 1950s, as taught in Libyan elementary schools in the 1960s, was dependent on three products (i) Esparto, a plant that was used to make paper currency, (ii) livestock exported to Egypt and Greece, and (iii) scrap metal from the machines used in World War II.
After its independence and prior to the production of oil, the main source of revenue for the Libyan budget was derived from rent payments paid by the American and British governments for the use of military bases on Libyan soil.
After 42 years of rule, Gaddafi was removed from power through a revolution that occurred during the Arab Spring. However, after his death, he left a legacy of mayhem fueled by a lack of political culture and structured political institutions. The Gaddafi regime’s apathetic attitude and incoherent economic development strategies left Libya as one of the least developed oil producing countries. Further, the Gaddafi regime’s obliteration response to the February 2011 Libyan uprising resulted in even more devastation to Libya’s already dilapidated infrastructure.
The Nature of Libyan Oil Production Contracts
Concession Agreement
The first type of oil and gas exploration/production contract used in Libya was a concession agreement. Under a concession agreement, IOCs were granted the right to explore, produce and market the minerals located on one of the country’s various plots or concession areas. Normally, Libyan territory would be divided into concession areas for the purpose of oil production. However, the whole country was occasionally considered one concession area for the purpose of oil production. A concession agreement granted an IOC full control, including technical and commercial control, over all aspects of the oil and gas production.
