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Libya May Sweeten Terms to Entice More Crude Oil Exploration

Libya is reassessing the terms it offers foreign companies to explore for oil as the OPEC member seeks to entice more partners and boost crude output while resolving worker protests that are curbing exports.

“The conditions are under review so as to improve relations with the companies in a win-win context and promote long-term investments,” Nuri Berruien, chairman of state-owned National Oil Corp., told an oil conference in Tripoli today.

Libya plans to hold its next bidding round for exploration rights in mid-2014, Berruien said. The auction would be the North African country’s first since the ouster of Muammar Qaddafi in 2011.

Eni SpA (ENI), Royal Dutch Shell Plc (RDSA), Exxon Mobil Corp. (XOM), Repsol SA (REP), Total SA (FP) and OAO Gazprom (OGZD) are among about 30 companies that won licenses in four auctions held from 2005 to 2007. Libya organized the rounds after the U.S. in 2004 lifted economic sanctions it imposed nearly 20 years earlier over accusations that Qaddafi supported terrorists.

The new terms would sweeten financial incentives for companies exploring in remote areas, according to Najmi Karim, chairman of Libya’s petroleum law review committee. “We will seek to reward risk,” he said in an interview in Tripoli.

High Potential

The terms Libya offered in previous rounds “were considered just about competitive,” Eurasia Group North Africa analyst Riccardo Fabiani said yesterday in an e-mail. “The international oil companies were attracted mostly to the fact that Libya was relatively under-explored after decades of international sanctions and isolation, and therefore the potential was considered high.”

The county’s production peaked at 3.3 million barrels a day in 1970, the year after Qaddafi took power. The most it has pumped since then was about 1.8 million barrels a day in 2008.

Libya, with Africa’s largest proven oil reserves, is producing at a daily rate of 200,000 to 240,000 barrels, Berruein said, a fraction of the post-Qaddafi era high of 1.6 million barrels that it reached last year. Worker protests over pay, jobs and promotions have crippled operations at oil terminals in recent months, curbing shipments.

Berruien said he was “confident that the oil and gas sector will overcome all these emergency circumstances and go back to its previous situation.” Production and exports would return to normal in “a short time,” he said.

Elephant Field

Libya restored about 25 percent of its production capacity when output resumed at the Sharara and El Feel, or Elephant, fields after talks between the government and striking workers, the state-run news agency Lana reported yesterday, citing Abdulwahhab El-Gayedi, the head of parliament’s oil-industry crisis group. Berruein confirmed that oil was flowing to the Zawiya refinery from Sharara and said he expected crude from El Feel to follow later today.

The two fields combined should increase Libya’s oil production by about 400,000 barrels a day, he said.

“Libya is resource-rich but not fulfilling its production potential,” Ferdinando Rigardo, regional manager of Repsol SA, said at the conference in Tripoli. Madrid-based Repsol is the operator at Sharara.

Libya was losing as much as $130 million a day in potential because of the worker protests, according to the finance ministry. Oil revenue accounts for 75 percent of the government’s income, the U.S. Energy Information Administration says, and the lost revenue is complicating Libya’s struggle to recover from the 2011 civil war that ended Qaddafi’s rule.

Foreign companies that won the country’s earlier bidding rounds were those that offered to keep the smallest share of any oil they produced. The average share that winners offered to keep in the third licensing round in 2006 was 11.7 percent, “one of the world’s lowest,” according to former NOC Chairman Shukri Ghanem.

To contact the reporter on this story: Maher Chmaytelli in Dubai at mchmaytelli@bloomberg.net

To contact the editor responsible for this story: Stephen Voss on sev@bloomberg.net

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