THE SUNDAY TELEGRAPH (UK): Oil giants resume Libyan adventure: “Doing business in Libya is like 'kissing a porcupine': “It is expected to face fierce competition from rivals. Royal Dutch/Shell, which signed a landmark agreement with Libya in March, is one. The Anglo-Dutch oil major desperately needs to boost its oil and gas reserves after its shock admission last year that it had overbooked its proven reserves by more than 25 per cent.” (ShellNews.net) 2 Jan 04

(Filed: 02/01/2005)

The former pariah wants Western help to exploit gigantic reserves, writes Sylvia Pfeifer. Doing business in Libya is like 'kissing a porcupine'

The world's biggest energy companies are preparing to fight it out for a stake in Libya's lucrative oil and gas industry. Less than a year after it was welcomed back into the international fold, Libya will later this month hold a multi-billion pound auction of drilling rights to some of the world's largest oil and gas reserves.

The stakes are high. The major oil companies are desperately seeking new regions to explore. While Russia was the top target for many companies, the recent effective renationalisation of Yukos has made some shy away from investing in the country.

Over 60 companies, including Royal Dutch/Shell and BP, have been given the green light to bid in the auction, which takes place in Tripoli on January 29. A host of American oil giants, including ExxonMobil, ChevronTexaco and Occidental Petroleum, are also expected to take part in what will be the first big opportunity for American companies to do business in Libya since the US lifted trade sanctions in September after 18 years.

For the oil giants the prize is a huge, untapped source of crude oil. Wood Mackenzie, the oil analysis firm, estimates that Libya, which is a member of Opec, the oil producing cartel, has some 32bn barrels of oil and gas.

But the country, which is Africa's second largest exporter of oil after Nigeria, desperately needs foreign capital and new technology if the government is to meet its target of boosting oil output from about 1.6m barrels a day to almost 3m barrels a day by 2010. The importance of the energy industry to Libya is hard to overstate, as it accounts for about 95 per cent of the country's hard currency earnings.

"There is tremendous upside opportunity for any oil company because of the tremendous proven reserves that Libya has. And because there are so many infrastructure issues that need to be resolved, there are also a lot of other opportunities - for example, in the downstream, construction and oilfield services sectors," says Scott Maberry, a lawyer with Fulbright & Jaworski, a law firm that is helping several US companies in their Libyan efforts.

Analysts said Libya appears to be more serious about attracting investment than five years ago, when it last auctioned permits. Until the lifting of US sanctions, the only major foreign oil companies active in Libya were France's Total, Italy's ENI and Spain's Repsol.

Now, the Libyan government appears to be particularly keen to attract investment from US oil companies, many of which had operations in the country until 1986. Occidental Petroleum, which was a leading US producer in Libya before the sanctions, is viewed by many as a frontrunner to resume operations in the country.

It is expected to face fierce competition from rivals. Royal Dutch/Shell, which signed a landmark agreement with Libya in March, is one. The Anglo-Dutch oil major desperately needs to boost its oil and gas reserves after its shock admission last year that it had overbooked its proven reserves by more than 25 per cent.

"Libya offers significant and attractive oil and gas prospects," says a spokeswoman for Shell. "Our first target is to conclude the present discussions with the Libyan National Oil Corporation for the establishment of a long-term strategic partnership. Shell, like all [oil] companies, is interested in looking at any bidding round to acquire exploration acreage and is evaluating what is on offer before deciding to make any bid."

BP has yet to clarify its intentions, but a spokesman last week confirmed that it had expressed an initial interest in the auction. BP left Libya after its operations in the country were nationalised in the early 1970s, ending nearly two decades of highly successful operations.

On January 29 Libya's National Oil Corporation (NOC) will offer exploration and production rights on almost 130,000sq km, divided into 15 blocks, in the north and west of the country. Nine of the blocks are onshore. The contracts being auctioned will be production-sharing agreements and analysts expect the Libyans to choose the winning bids on the basis of which company gives the state-owned NOC the highest share of production. The NOC is expected to get more than 50 per cent of any new production-sharing agreement.

The auction could mark a change in fortune for Libya. Muammar Gaddafi, Libya's leader, has managed to bring his country back from the cold after years of isolation following the Lockerbie bombing. The north African state was dramatically rehabilitated in late 2003 after it agreed to pay compensation for the atrocity, publicly dropped its weapons of mass destruction programme and declared a stockpile of chemical weapons to inspectors from the United Nations.

On a visit to Tripoli last April, Tony Blair declared Libya's change of heart a victory for British diplomacy. The US resumed trade relations with Libya in September, 18 years after former president Ronald Reagan imposed sanctions.

But while the contracts are likely to be lucrative, doing business in Libya is still fraught with difficulty. "It's like kissing a porcupine," says Maberry. "It's possible to do business in Libya but it's a lot of work and you need to be careful. Libya still remains among the top 10 most restricted destinations for US-origin exports, and a lot of trade control issues still need to be resolved."

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2005/01/02/cclibya02.xml 

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