The Discovery of Oil and the Law of 1955
The Petroleum Law No. 25 of 1955 is considered the authoritative legal text for the Libyan oil industry. It divided concession areas into small exploration sections, not exceeding 75,000 square kilometers. In contrast with other Arab countries, both large and small oil companies began exploring the Libyan Desert due to the aforementioned law's planned strategy. In effect, the Libyan government enabled many foreign and domestic investors to drill rather than allow a monopoly of one or two investors to control the concession areas.
The first concessions for oil exploration granted to foreign companies were in1956. In 1959 oil was discovered in the Zletin oil field, and Libya became an oil exporter in 1961. Prior to Gaddafi's military coup in September of 1969, Libya's oil production surpassed 3 million barrels per day. When Gaddafi was ousted from power, Libya's oil production was at 1.6 million barrels a day.
Libya's Nationalization Laws
The belief that the oil exploration contracts worldwide are unfair led the host country (producing country) to demand more benefits from its natural resources. Libya's nationalization of oil production in the 1970s did not surprise the oil companies since the nationalization of oil production started in Venezuela's 1940s.
The Libyan regime began a process of nationalization of the oil and gas sector in the early 1970s by demanding higher petroleum prices, a more significant share of revenues, and more control over its development. On December 7, 1971, Libya issued Law no. 115 declaring the nationalization of all of the interests and properties in Libya of British Petroleum Exploration Company (Libya) Limited (B.P.), a British subsidiary Petroleum Company Limited.
Law no. 44 was enacted on August 11 of 1973, nationalizing 51 % of all funds, rights, assets, shares, stocks, activities, and interests in any form whatsoever owned by Occidental Libya Inc. A Few weeks later, on September 1, 1973 (the fourth anniversary of Gaddafi's coup), Libya issued Law no. 66 nationalizing 51 % of all funds, rights, assets, shares, stocks, activities, and interests in any form whatsoever owned by the oil companies named in the law. The nationalization covered forty-five concession contracts belonging to (1) Esso Standard Libya, (2) Libyan American Oil, Grace Oil, and Esso Sirte, (3) Shell Exploration & Production Ltd., (4) Mobil Oil Libya and Gelsenberg Libya, and (5) Texaco Overseas Petroleum Company and Asiatic Petroleum Of California.
The 1973 nationalization process continued to 1974 when two laws were enacted. On February 11, 1974, Libya issued Law no 10 nationalizing the total funds, rights, assets, shares, stocks, activities, and interests in any form whatsoever owned by the Libyan American Oil Company (LIAMCO). In March 1974, Libya enacted Law No. 35 nationalizing the total funds, rights, assets, shares, stocks, activities, and interests in any form whatsoever owned by Shell Exploratie En Productie Maatschappij, Libya, N.V which held eight concession contracts.
Claims against Libya
Since Libya's nationalization of foreign oil companies started in the 1970s, Libya had faced two international types of claims against it. The first type of claims was during the 1970s based on Libya's nationalization of foreign companies' assets. The second type of claims, filled after the 2011 revolution, was based on an alleged contract breach
Claims Based on Nationalization of Property and Interests
As a response to the Libyan laws nationalizing the funds, rights, assets, shares, stocks, activities, and interests of foreign oil companies, British Petroleum (B.P.), the Libyan American Oil Company (LIAMCO), and Texaco, and California Asiatic filed claims against Libya.
- B.P. v. Libya
The Libyan nationalization laws, such as Law no. 7 of 1971, nationalizing the B.P., included an article calling on Libya to pay compensation to the oil companies. The amount of compensation was to be determined by a committee to be established by the Minister of Petroleum. The committee's decision was to be documented and final and communicated to the Minister of Petroleum, who was to notify the Claimant of it within thirty days of its issue.
According to the B.P., Libya failed to pay compensation as required by the B.P. Nationalization Law even though a three-person committee was appointed in February of 1972. As a result of the three-person committee recommendations, Libya enacted Law No. 102 of 1974, which approved compensation to the B.P. Libya agreed to pay an amount of 12 million Libyan Dinars (could have been equivalent to 14 million British Pound) for the B.P.'s all funds, rights, assets, shares, and other facilities, facilities, and means of any kind resulting from the nationalization of its activity in the oil concession No. 65, or the cancellation or assignment of all other oil concession contracts granted to it in Libya.
In March of 1972, the B.P., as required by Clause 28 of the Concession Agreement of 1966, as amended, signed between Libya and the B.P., applied to the President of the International Court of Justice for an appointment of an arbitrator. An arbitrator was named in April 1972. Libya never attended any of the meetings, and the parties reached a settlement agreement in October 1974. Libya paid the B.P. an amount of 17.4 million British Pounds.
- Texaco and California Asiatic Oil Co. v. Libya
On February 11, 1974, the Government of Libya issued Law no. 11 announcing the nationalization of the remaining 49 percent (the remaining 51% was nationalized by Law no. 66) of the interests and properties in Libya of Texaco Overseas Petroleum Company (TOPCO), a subsidiary of Texaco Inc. and California Asiatic Oil Company (CALASIATIC) a subsidiary of Standard Oil Company of California who was awarded deeds of concession jointly with TOPCO,
TOPCO and CALASIATIC instituted arbitration proceedings on September 2, 1973, filed the Libyan Government did not participate in the arbitral proceedings. The case has been settled in the meantime. The parties have agreed that Libya shall provide the companies with U.S. $152 million of Libyan crude oil over the next 15 months and that the companies shall terminate the arbitration proceedings.
International Legal Materials p. 2 (1978)).
- Libyan American Oil Company (LIAMCO) v. Libya
On February 11, 1974, the Government of Libya announced the nationalization of the remaining 49 percent of the interests and properties in Libya of nine companies. Among them Texaco Overseas Petroleum Company (TOPCO), a subsidiary of Texaco Inc.; California Asiatic Oil Company (CALASIATIC) who was awarded deeds of concession jointly with TOPCO, a subsidiary of Standard Oil Company of California; and the Libyan American Oil Company (LIAMCO), a subsidiary of Atlantic Richfield Company.
LIAMCO filed for arbitration according to Article 28 of the concessions. Over Libya's objections, an arbitrator was appointed by the President of the International Court of Justice. Libya did not take part in the arbitration proceedings.
LIAMCO claimed (i) $13,882,677, the market value of its physical plant and equipment as of the date of nationalization, (ii) $186,270,000, compensation for loss of profit the concession 20 for the remainder of the concession term, and (iii) $7,500,000 for the loss of concession 17 for the remainder of the concession term.
The arbitrator pointed did not rely on the "prompt, effective, and adequate" formula as argued by LIAMCO. He applied what he considered "equitable compensation" and awarded LIAMCO $66,000,000 as a loss of profit in concession No. 20 while rejected LIAMCO's loss of profit claim for concession No. 17.
The LIAMCO's award was (i) $13,882,677 for the loss of physical assets and equipment, (ii) $66,000,000 for its interest in concession No. 20, and (iii) $203,000 in costs and expenses.
Claims Based on alleged Breach of Contracts (Non-performance)
The second type of arbitration claims filed against Libya is based on alleged breach of contract by Libya's National Oil Company is the 2011 revolution-related claims.
- Libyan Emirates Refining Company (LERCO) v. National Oil Company
In 2013, Trasta Energy (an Emirati company) and the Libyan Emirati Refining Company (LERCO) filed arbitration proceedings with the International Court of Arbitration of the International Chamber of Commerce (I.C.C.) against the National Oil Company (N.O.C.). LERCO is a joint venture between the N.O.C. and TRASTA, a subsidiary of the Emirati group Al Ghurair, which operates the 200,000 barrels-per-day refinery at Ras Lanuf.
In late 2017, the I.C.C. Court dismissed the damages claim filed by Trasta, and in January 2018, it dismissed an US$812 million damages claim filed by LERCO. In addition, I.C.C. Court in LERCO's case awarded the N.O.C. nearly $116 million-plus interest.
On February 28, 2021, a Paris court of appeal had upheld the award by a court of arbitration against Libyan Emirates Oil Refining Company (LERCO) regarding the Ras Lanuf refinery in Libya. According to the N.O.C., the appeals court had confirmed that LERCO must pay N.O.C. over $115 million-plus interest. It said this came to $132 million as of February 28, 2021.
- Punj Lloyd Limited v. Sirte Oil Company (a subsidiary of the N.O.C.)
In 2006, Punj Lloyd (an Indian company) signed a contract with Sirte Oil, a N.O.C subsidiary, to lay two pipelines in Libya and build three compressor stations. As a result of force majure and delay in executing projects caused by the 2011 Libyan revolution, Punj Lloyd launched an I.C.C. claim against Sirte Oil Company in a dispute over a pipe-laying project.
The I.C.C. Court ruled in favor of Libya's Sirte Oil Company, rejecting a lawsuit filed by India's Punj Lloyd. It ordered Punj Lloyd to pay 5.195 million dollars to Sirte Oil Company in compensation.
Dr. Mohamed Karbal is licensed to practice law in Libya, New York, and Washington D.C. and provided legal advice to multinationals oil companies. Karbal & Co is a full-service international law firm that serves the needs of businesses and governments in Libya and Washington, D.C.
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