Overdue payments, feuding ministers imperil Libyan oil output targets

Libya's efforts to boost oil and gas output could be jeopardized once again as oil services companies warn they could exit due to missing payments and rival oil ministers threaten to hinder negotiations with international oil companies.

The developments could upend newfound stability in Libya's oil sector, with production at 1.15 million b/d in May, according to the latest Platts OPEC+ survey from S&P Global Commodity Insights, and exports hitting a 19-month high of 1.12 million b/d in April.

State-owned National Oil Corporation has targeted 2 million b/d of crude production by 2027, but that ambitious goal looks in peril now, after SLB -- formerly known as Schlumberger -- one of the world's biggest oil services companies, threatened to quit Libya on July 1 over hundreds of millions of dollars in overdue payments.

In a letter addressed to NOC chairman Farhat Bengdara on June 9 and seen by Commodity Insights, SLB's general manager Mustafa Ajaj said the company would be forced to cease its operations unless $242.5 million of outstanding debts are settled with its firms Schlumberger Overseas, Dowell Schlumberger and Anadrill International.

"The difficult financial distress our company is going through today due to the total debts owed... has had a negative impact on maintaining business continuity and our financial obligations owed to local and non-local employees and suppliers," Ajaj wrote, adding that the debts had reached "unprecedented levels."

An accompanying table shows the debts split between 14 NOC subsidiaries and joint ventures with IOCs, including the Mellitah venture between NOC, Italy's Eni and Spain's Repsol. The biggest debt is $82 million owed by Agoco, the eastern branch of NOC which is dominated by eastern warlord Khalifa Haftar and his sons.

Ajaj noted, however, that the Houston-based company was seeking a "swift resolution" to the crisis. SLB did not respond to requests for comment from Commodity Insights.

Insiders said SLB was not alone in struggling with payments. Sources said Halliburton, also based in Houston, had faced similar issues. Haliburton declined to comment.

"Keeping the service sector onside is critical for Libya's upstream maintenance schedule and for any chance at realizing ambitious production growth targets," said Catherine Hunter, a senior analyst at Commodity Insights. "More so in the absence of major new project awards to IOCs which have been held back by internal infighting and lack of consensus over the shape and form of new contracts."

Political instability

OPEC member Libya, which pumps light sweet crude, holds Africa's largest oil reserves but has been riven by political instability since the fall of Moammar Qadhafi in 2011. Today it is run by separate governments, one internationally recognized in Tripoli and the other in Benghazi, dominated by Khalifa Haftar.

The oil sector accounts for some 97% of government revenue and is a microcosm for Libya's wider political divisions, experts say.

Platts, part of Commodity Insights, last assessed Libya's Es Sider crude grade at $84.38/b on June 25.

An SLB departure in particular -- although deemed unlikely at this stage -- would impair NOC's efforts to meet its output targets. "It will certainly affect targets as SLB's technology is important to much of the NOC operation," said a well-placed source.

The company has a number of contracts ongoing for drilling and workovers in Libya including in the Waha field, where it hopes to add 100,000 b/d of crude production in the coming years.

The past two quarters' worth of financial results from SLB show several new agreements, including an eight-year contract with Arkenu, a private firm with links to Agoco, to develop as many as 150 new wells and a three-year deal with Mabruk Oil Operations to deploy an "express" early production facility to help fast-track production of 25,000 b/d of crude. Repsol contracted SLB to drill two exploration wells and Nafusah awarded it a contract for development of up to 10,000 b/d of oil in the North Hamada Area 47.

In its Q4 2023 results, SLB said it had boosted oil production at the massive Bu Attifel field by 180% by upgrading three wells for Mellitah Oil & Gas.

"If SLB stops then the 2024 targets, which were already too optimistic, will not happen," said a source familiar with the spat. "Infrastructure is the main impediment to boosting production, so without all the maintenance work, drilling etc., Libya will be struggling."

Competing ministers

Complaints from oil services firms are not the only challenge engulfing Libya's oil and gas sector; in the capital Tripoli, conflicting oil ministers are providing a further headache for IOCs.

Mohamed Aoun, the official minister, was suspended in March by the Administrative Control Authority -- a watchdog -- over a corruption investigation, but returned to work in late May after the probe was dropped. Aoun had loudly opposed key negotiations between the NOC and IOCs, including over the NC-7 oil and gas project with Eni, the UAE's ADNOC and TotalEnergies, and over the Waha development with ConocoPhillips and TotalEnergies.

Despite Aoun's shock return, Khalifa Rajab Abdulsadek, the interim minister, has remained in post with the backing of Abdul Hamid al-Dbeiba, prime minister and head of the Tripoli-based Government of National Unity.

It comes after analysts identified a reorientation of Libyan politics around Dbeiba, Bengdara and Haftar that could usher in a period of stability, if not long-awaited elections, and stable oil output.

Aoun and Abdulsadek were said to be working in neighboring buildings in the capital, with the latter in the new NOC headquarters, giving him greater access to Bengdara. Abdulsadek also has a seat on the NOC's board of directors.

Key political actors have long held the ability to disrupt Libya's oil and gas sector. Abdulsadek, who is close to the Dbeiba clan, was expected to unfreeze key projects, such as NC-7 and Waha, but the return of Aoun could complicate the negotiations.

Paired with increased restlessness among oil services companies, Libya's oil sector revival looks uncertain once again.