Key Insights on Libya’s New Upstream Licensing Round

Since the 2011 uprising, international investors have cautiously eyed potential investment opportunities in Libya due to legal and political uncertainties. Recently, we have observed renewed interest in Libya’s energy sector from clients. With that in mind, this article explores a major development in Libya’s energy sector, focusing on the new terms of EPSA V.

New Licensing Round

On 3 March 2025, the National Oil Corporation (“NOC”) and the Ministry of Oil and Gas (“MOG”) officially launched Libya’s first international upstream licensing round in 18 years.

Despite its vast resource potential, 65% of Libya’s territorial waters and 70% of its land area remain unexplored. To unlock these opportunities, the NOC has identified 22 onshore and offshore blocks for licensing, with the goal of increasing crude oil production to 2 million barrels per day (mbd) by 2028.

As part of this licensing round, Libya is set to introduce the fifth model of its well-known Exploration and Production Sharing Agreement (“EPSA”).

Legal Background

The legal framework governing the Libyan hydrocarbon sector is primarily contained in Petroleum Law No 25 of 1955, its regulations, and subsequent amendments (the “Petroleum Law”).

Initially, Libya used a concession-based system which granted international oil companies (“IOCs”) extensive rights over petroleum production in exchange for royalties and taxes. Seeking greater national oversight, Libya transitioned to the EPSA model in the 1970s.

The EPSA framework has evolved over time to balance state control with foreign investment incentives. Since its introduction, Libya has developed four models of EPSA reflecting market conditions and political dynamics. Libya is now set to introduce EPSA V, which is understood to provide a modernised framework featuring improved fiscal terms.

New Fiscal Terms

The full terms of EPSA V have not been disclosed yet. However, the NOC and MOG published a summary brochure outlining key fiscal terms of EPSA V. Based on this summary brochure, EPSA V is understood to introduce the following fiscal terms:

• It appears to change how contractors and the NOC share profits by removing the B-Factor, which in EPSA IV reduced a contractor’s share of profit as production increased. This development is expected to allow contractors to expand production without automatically losing a larger share of revenue.
• It proposes a new formula for the A-Factor, which was already part of EPSA IV. The A-Factor determines how much profit a contractor keeps, based on its earnings compared to its expenditures. The new A-Factor formula reportedly improves return on investment for contractors.
• It replaces the old step-change profit-sharing system with a sliding-scale R-Factor. Under EPSA IV, a contractor’s share of profit oil could drop suddenly once it reached a certain earnings level. The new model is likely to make reductions more gradual, enabling contractors to keep a steadier share of profits. 

Notably, the NOC’s role in the payment of tax to the authorities appears to have been retained. Under EPSA IV, the NOC was responsible for paying income tax on behalf of contractors. Contractors were only required to prepare and submit tax declarations, but the NOC handled the payment to the tax authorities. EPSA V is understood to maintain the same structure, with the NOC continuing to pay income tax on behalf of contractors.

Dispute Resolution and Investor Protection

Under EPSA IV, dispute resolution followed a two-step approach. First, parties were required to attempt an amicable settlement. If negotiations failed, the dispute would proceed to arbitration under the Rules of Arbitration of the International Chamber of Commerce (“ICC”) in Paris. It remains to be seen if EPSA V contains the same dispute resolution mechanism.

Contractors operating in Libya may be protected under bilateral investment treaties (“BITs”), which safeguard against unfair treatment and expropriation.

BITs generally prevent the Libyan government from depriving foreign investors of their ownership rights. If such an action occurs, a contractor may seek compensation through arbitration. These treaties provide an additional layer of legal protection beyond EPSA agreements, but coverage depends on whether a contractor’s home country has a BIT with Libya.

At present, Libya has 26 BITs in force with Singapore, Turkey, Russia, Germany, Spain, Belgium-Luxembourg, South Korea, Malta, France, Portugal, Cyprus, Italy, Switzerland, Austria, and Egypt, amongst other countries. There are no BITs in force with the United States or the United Kingdom.

Approval Process

Under Libyan law, the NOC has the authority to negotiate and enter into an EPSA with contractors. However, an EPSA does not become effective until it receives approval from the Council of Ministers.

In addition, other entities such as the MOG and the Audit Bureau may also be involved in the review process. Their approval may be required to ensure compliance with Libya’s legal, financial, and regulatory frameworks.

As Libya steps up its efforts to attract more international investment, we will keep an eye on relevant developments and share updates as they come.

If you have any questions about Libya’s new EPSA model, please feel free to contact Mahmud at: Mahmud.Sawan@clydeco.com

Clyde & Co is a leading global law firm, known for its exceptional expertise in energy law across the Middle East and Africa. The firm has successfully advised governments and IOCs on both contentious and non-contentious matters related to production sharing agreements.

The author, Mahmud Sawan, has extensive experience in Libyan law, particularly in advising IOCs operating in Libya’s petroleum sector. He holds an LLM specialising in hydrocarbon laws, and his dissertation, titled 'Libya’s NOC: Moving from Volume to Value,' showcases his in-depth knowledge of the industry.