Many IOC's unsure whether or not to stay in Libya

Chevron is reported to have indicated its intention to withdraw from Libya at the end of its existing five-year exploration licences. Speaking at a press conference on 2nd October, National Oil Company's (NOC) Exploration Director Haj Fitouri stated that other IOCs who were not expected to extend their stay included Australia's Woodside Petroleum and Abu Dhabi's Liwa Energy.

Among those expected by NOC to remain are Occidental, which has a continuing link as a partner in the Zuetina Oil Company, and also Hess, Petrobrás, Medco Energy, Oil India and Sonatrach. NOC saw the withdrawal of this significant number of major companies as “expected” because no commercial oil had been discovered during their exploration programmes. Head of NOC Dr Shukri Ghanem has been very quick to indicate that Occidental retains an interest and is an NOC partner for the longer term.

While NOC's prognosis of a decline in the overall number of IOCs which will remain in Libya is undoubtedly correct, it is less certain which of the companies will stay and which will remain in some capacity. With the licenses from the first EPSA IV licensing round due to end in the near future – and very little new oil having been found in the past five years - many IOCs will be weighing up their options about whether to extend their licenses, leave the country or remain in the hope of negotiating a separate bilateral deal outside any licensing round. They will obviously be taking other factors into consideration, including their existing world-wide portfolio; more attractive opportunities elsewhere; the very onerous fiscal terms imposed by NOC; the way in which the goal-posts are always being moved by NOC; local content demands; etc.

Given Ghanem's insistence that he is prepared to be flexible when negotiating new terms for the IOCs, it is, therefore, possible that Chevron, which has already downsized its Libyan operation very considerably, will decide to stay and negotiate bilaterally with NOC.

For more news and expert analysis about Libya, please see Libya Focus and Libya Politics & Security.

© 2010 Menas Associates

What effect will the election have on Brazil's energy sector?

Before becoming Lula's Chief of the Civil Cabinet and his right hand, Dilma Rousseff had been his Minister for Mines & Energy and chair of Petrobrás. Throughout Lula's eight-year mandate, she remained in control of the energy sector, under the political dominance of PT and PMDB parties.

The results were not encouraging. The sector today reflects the government's general proclivity towards nationalism and state interventionism. Petrobras' capitalisation has been an unmitigated mess, as has been the entire pre-salt institutional framework. These tendencies are likely to persevere under Dilma's tenure as president. Moreover, she is prone to greater influence than Lula by the radical wing of the PT party, which translates into a statist, xenophobic and anti-capitalist bias.

There might be more overtures to South American energy integration, but in practice this means yielding to the demands of Brazil's 'Bolivarian' neighbours led by Venezuela's President Hugo Chávez, plus Paraguay, thus continuing Lula's failed scheme of a "diplomacy of generosity" at the expense of the Brazilian taxpayer.

If the former São Paulo governor and main opposition candidate, José Serra, wins the presidency, there will be none of the latter, and indeed the model for the energy sector will most likely consist predominantly of public-private partnerships (PPP), for which laws are now in effect, but, under Lula, not enough political will to implement them.

Dilma can be expected to pursue Lula's national-developmentalist strategy, in the energy sector, as well as Brazilian infrastructure in general.

For more news and expert analysis about Brazil, please see Brazil Focus.

© 2010 Menas Associates