Who Wins, Loses As Libya Reopens For Oil Business
Petroleum Intelligence Weekly, April 26
By Jonathan Bearman in Geneva (04/19/99 fax)
The Libyan oil industry is using a
conference in Geneva this week to launch
what could be a long push to secure foreign
oil company investment to rebuild and
expand its upstream capacity. With the
hand-over of the two Lockerbie airline bomb
suspects for trial in The Hague, expectations
are that United Nations sanctions will be
lifted permanently -- as opposed to
suspended. Hopes are strong that,
eventually, unilateral US sanctions will end,
as well.
But in the meantime, the US firms
that once operated Libya's two biggest
active oil fields could lose out from a revision
of Libya's basic petroleum law that is
designed to redistribute acreage held by the
Libyan National Oil Company and to change
the tax regime in order to reduce the fiscal
burden on private operators. The dominantly
state-held company that took over the Waha
fields that produce Es Sider export grade has
been asked to give undeveloped acreage
back to LNOC.
Along with some acreage that may be
taken back from Italy's ENI, this could
provide many of the prospects that will
initially be available to other firms, senior
Libyan officials tell EIG. The terms of the
standstill agreements through which Tripoli
has held concessions open for their earlier
US-based holders is likely to apply in future
only to producing fields. Plans call for
passage of the new petroleum law in early
2000, with the first bidding round likely by
mid- 2000.
Oil Minister Abdullah al-Badri stresses that
this bidding round will be "transparent" and
in line with "international standards." Badri
also maintains that the revised petroleum law
that is now under preparation by a special
Libyan committee will leave intact standstill
agreements negotiated with US companies in
July 1986 before they were obliged to pull
out in 1987 due to a US executive order
prohibited such operations in Libya.
Technically, these agreements expire in
1989, but the Libyan government has been
vocal in continuing to honor them since that
time as they apply to four US companies -
Amerada Hess, Conoco, and Marathon in the
Waha complex that produces Es Sider grade,
and Occidental in the Zueitina oil field. Waha
was formerly know by the English equivalent
of Oasis.
LNOC Chairman Hammouda al-Aswad confirms
to EIG that "the American companies will not
be affected. Under the agreement we have
signed, we cannot take their acreage away."
However, other senior Libyan officials explain
that rights of the US companies apply only to
operating fields, not exploration acreage, and
have done for some time. This appears to be
the source of the considerable confusion
over what acreage will be held open for
these firms until US law allows them to go
back into Libya.
A fifth US company, WR Grace, earlier held a
12% stake in acreage that was subsequently
taken over by French Total. Grace attempted
to challenge this, but an international
arbitration panel ruled in 1996 that the
Libyan government had every right to
develop concessions vacated by US firms
{35#08-10}. The acreage in question
includes the 12,000 b/d Mabruk field now
operated by Total {37#09- 10}.
Both the Waha and Zueitina fields still offer
substantial long-term potential. As one US oil
company source sees it, Waha has "truly
great prospect for long reserve expansion."
Likewise, Nagmeddin Arifi, chairman of the
part-state Zueitina Oil Company that has
taken over operation of the old Oxy
concession, says that Zueitina could have
another 400-million barrels of recoverable
reserves if more gas were re-injected into
the A structure.
The D structure in the 40-year-old field is
largely exhausted, and production has slipped
to 80,000 barrels a day. Alongside the Libyan
government, Austria's OMV now has a 12.5%
stake in the Zueitina Oil Co.
It is Waha, though, that is the most
sensitive issue. While progress is being made
in exploration elsewhere -- most recently UK
Lasmo's 1997 Elephant fiend in the Murzuk
Basin and Lundin Oil's 1998 En Naga
discovery -- the potential for boosting
reserves appears much the greatest from
further development of the Waha acreage.
According to one senior Libyan source, LNOC
could raise output capacity to 2- million b/d
from current "stretch" capacity of 1.7-million
b/d for just $1.5- billion, and keep total
costs below $3 a barrel, if this acreage is
brought back into play.
Both Waha and the long-active Sarir field
operated by state Agoco are huge structures
with 3- to 4-billion barrels recoverable each.
Libyan officials argue that each could
produce about 1-million b/d given
investment. At present, Waha is producing
not quite 400,000 b/d, and Sarir about
300,000 b/d, this officials say.
It now appears that action is planned to pull
both areas back into more active
development. LNOC has asked the state-
controlled Waha Oil Company that took over
from the US Oasis group to surrender
acreage so it could be re-issued, Waha
Chairman Salah Kaabar tells EIG.
Nonetheless, LNOC head Aswad insists that
he is hoping to see the US companies return.
"We are hoping they will come back," he
declares. Aswad maintains that much of the
Waha acreage is highly prospective -- a
point supported by US oil company geologists
who have recently had a peep at the data --
adding that Libya's key oil-rich Sirte Basin,
home to most Libyan production, is still
"immature" as far as exploration is
concerned.
Aswad also explains that, while LNOC has
tried to replace US equipment with items
produced elsewhere, this has been difficult
and not always successful.
ENI Also At A Loss?
The acreage that Libya is intending to offer
will also include unexplored tracks to be
relinquished by state Agoco and by Italy's
ENI, operator of the Bu Attifel field. Libyan
officials maintain that, as owner of the
mineral rights, the Libyan government is
entitled to take back acreage, including
areas that the Italian company hasn't
explored or smaller finds that it hasn't
developed due to a reported shortage of
funds, especially following the recent fall in
oil prices.
ENI sources say that they have heard of the
Libyan plans. However, they concede that
the company's main target of expansion in
Libya is natural gas, not oil.
Little is likely to happen in the short-term, in
any case. Libya's Secretary for Economy and
Commerce Abdul hafiz Zleitni tells EIG that
the new petroleum law, amending a 1995
law, will not be ready until September or
October. It will then go to the Libya's
General Peoples Congress in January 2000.
Thereafter, LNOC will embark on a formal
bidding round, having already pre-qualified
companies. The first deals under the new
legislation aren't likely until mid- 2000.
One of the main reforms that companies are
looking for involves changes in the tax
provisions so they can avoid dual taxation.
To date, the Libyan Finance Ministry has
refused to issue certificates to show that
taxes have been paid in Libya, certificates
that are needed to allow foreign partners to
lower their tax obligations at home. Zleitni
says that the new law will remove this
problem.
Companies likely to be interested in
exploration acreage under the proposed new
terms include Malaysian state Petronas,
Ireland's Bula Resources, Denmark's Maersk,
Hungary's Mol, French Sipetrol, and Rigel,
formerly Total Canada. Some larger
companies, including US Kerr-McGee, have
also looked at the prospects in an arm's
length way, sending consultants to Moscow,
where Libyan data have reportedly
been on view for two years. |
