* Foreign firms re-assess prospects
* Initial results disappoint
* Libya focuses on renegotiating old contracts
Disappointment at the slow pace of oil finds in post-sanctions Libya is sowing doubt over output targets and leading some foreign oil firms to re-assess their prospects in the country.
Libya was off limits for most foreign oil firms for decades and they accepted some of the industry's tightest exploration and production sharing deals when they were at last able to access Africa's most promising oil acreage.
That puts them under heavy pressure to deliver.
It is still early days for engineers scouring the desert country and its Mediterranean sea bed for oil and gas.
Super-majors such as BP Plc and Exxon Mobil Corp, which nurture the biggest ambitions for Libya, are still at the stage of seismic testing.
BP ended a 30-year absence from Libya in 2007 when it signed its biggest exploration commitment through a bilateral deal. It will spend at least $900 million to search the onshore Ghadames area and offshore Sirte basin with 17 exploration wells.
Yet analysts said they would have expected a higher rate of oil and gas discoveries in Libya so far.
"Overall, initial exploration results have been disappointing compared to the level of expectations only a few years ago," said Craig McMahon of Wood Mackenzie.
Verenex of Canada is the only winner of post-sanctions licences under Libya's EPSA-IV tender mechanism to have made sizeable finds, prompting a battle for ownership of the company between Libya and China National Petroleum Corp.
More recent discoveries by Hess, Repsol and RWE are seen by industry experts as promising.
"But there's no doubt that things are moving more slowly than some of the companies hoped," said Ben Cahill, Petroleum Risk Manager at consultants PFC Energy. "Libya's production targets are in jeopardy and it won't be able to meet them without shifting its emphasis in the next two years."
DELAYS
Libya's government is still aiming for oil production of 3 million barrels a day by 2012, up from 2 million this year, and sees a doubling of gas production by 2012 or 2013 from the current rate of 3.5 billion cubic feet (99.1 million cubic metres) per day.
A rise in the number of foreign firms in Libya has tested the ability of its National Oil Corporation (NOC) to approve contracts and development plans and led to delays, Cahill said.
Many that won acreage in post-sanctions tenders have not yet finalised those deals and NOC has been preoccupied by the renegotiation of older contracts to bring them in line with Libya's new fiscal terms.
Occidental was among the most successful bidders in a 2005 exploration and production licensing round but has ended exploration drilling to focus on existing fields, according to industry experts.
"Right now Libya is what it is," Occidental Chief Executive Ray Irani told analysts in late April. "Things move slower than we expected and studies continue to take place, but I don't expect any meaningful increases there for at least another 12 months."
Occidental reported first-quarter net production from Libya of 8,000 barrels per day, down from 22,000 bpd a year earlier.
That was the same as in the fourth quarter, when company officials talked of a reduction of 12,000 barrels of oil equivalent per day in Libya from a year earlier due to new contract terms.
TIGHTER TERMS
Analysts say Libya could further tighten terms for foreign oil firms in the next two years as deals struck in competitive tenders since the end of sanctions come up for renegotiation.
Lower prices have slashed windfall energy income and given ammunition to establishment conservatives who think foreigners exploiting Libya's precious resources are having it too easy.
That could further discourage oil firms disappointed at the rate of new finds and dampen exploration activity.
"Companies exploring under EPSA-IV haven't made the big finds they were hoping for and are thinking of revising their strategy," said Jon Marks, editorial director of industry newsletter Africa Energy.
There is big potential for output increases in the short term as new technology boosts the performance of ageing wells, analysts say.
There are also many near-field areas containing patchworks of smaller reserves that are close to transport infrastructure and could be developed relatively quickly.
Now a global drop in equipment and service costs may spur some licence holders in Libya to move ahead with their work.
"However, whether NOC will be in a position to approve and critically fund these work plans remains to be seen," said McMahon of Wood Mackenzie.
Source: Reuters
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