Libya Boosts Oil-Field Security

By BENOÎT FAUCON

Libya is boosting security at its oil fields to avoid a repeat of the deadly terrorist attack last week in neighboring Algeria, the Libyan deputy oil minister said, as the hostage crisis reverberates through the global energy industry.

Libya will also send more troops to police its border with Algeria, which runs close to the gas field attacked by the Islamist militants, Libyan Deputy Oil Minister Omar Shakmak told The Wall Street Journal on Wednesday.

Kyodo/Reuters

Algerian workers stood at the In Amenas gas plant near the Libyan border on Jan. 16, in a photo secretly taken by one of the hostages.

Mr. Shakmak said he had no knowledge of a particular threat to Libya, but said Tripoli was sending more troops to the border and to desert oil fields, and boosting communications capacity, as a precautionary measure in response to the Algeria attack. "We have a concern since last week," he said.

The assault on the In Amenas field, which is operated by BP BP.LN +0.90%PLC, Statoil ASA STL.OS +0.48% and Algerian state oil company Sonatrach, left at least 37 foreign workers dead and exposed a formidable new threat for oil companies operating in the Sahara region.

Several regional experts have highlighted Libya's oil industry—where many international companies including U.S.-based ConocoPhillips, COP -0.72% Italy's EniSpA ENI.MI -0.31% and France's Total SA FP.FR -0.01% operate—as one of the most likely targets of a terrorist attack following the Algerian incident.

Many of the country's oil and gas exploration and production sites are located in the sparsely populated deserts of western Libya, not far from the Algerian border. Following the toppling of former dictator Moammar Gadhafi in 2011, experts said, Libya also suffers from lax security.

"The government is weak and the early signs indicate [Libya] will take longer than anticipated" to stabilize the security situation, said Tarek Alwan, head of SOC Libya Ltd., which advises oil companies on the North African nation.

There is evidence that heavily armed militias, some tied to al Qaeda, are operating in the country. In September, terrorists attacked the U.S. Consulate in the eastern Libyan city of Benghazi, killing four Americans including the U.S. ambassador.

Algerian authorities believe the Islamist terrorists attacked the In Amenas complex after crossing over from the Libyan side of the border, which is about 20 miles from the site, a senior Algerian security official said. The weapons they used were also thought to have originated in Libya, the security official said.

Algerian authorities believe the terrorist group was led by an Algerian national and included citizens from many North African countries.

—Sarah Kent contributed to this article.

British Petroleum (BP) to resume operations in Libya

A BP logo is seen on a petrol station in London November 2, 2010.

Credit: Reuters/Suzanne Plunkett

By Hamid Ould Ahmed

BP is to resume exploration activities in Libya that it suspended because of last year's uprising, re-starting a relationship which under ousted Libyan leader Muammar Gaddafi landed the firm in the centre of a political storm.

BP's return is a milestone in the recovery of Libya's energy sector, though this was tempered by an announcement from Royal Dutch Shell (RDSa.L) that it would pull out of fields in Libya on the grounds that they were not worth developing.

BP closed down operations in Libya and withdrew its expatriate workers in February last year, days after protests broke out in eastern Libya which with help from NATO warplanes and missiles eventually forced Gaddafi from power.

The oil firm follows other majors, including Eni (ENI.MI) and Total (TOTF.PA) in restarting Libya operations, despite lingering worries about security and the possibility the new authorities will try to re-negotiate contracts signed under Gaddafi.

The head of Libya's National Oil Corporation, Nuri Berruien, and Michael Daly, BP's executive president for exploration, agreed in Tripoli on Tuesday to lift force majeure, the legal mechanism under which BP suspended its operations last year.

The agreement was a "significant milestone in BP's plans to return to the exploration of onshore and offshore blocks," Daly said in a statement.

BP's then chief executive Tony Hayward travelled to Tripoli in 2007 to sign a $900 million contract giving the company the right to explore onshore and offshore fields in Libya, home of Africa's largest proven crude reserves.

But the deal quickly became entwined in a furious political row about Abdel Basset al-Megrahi, the Libyan convicted of the 1988 bombing of a U.S. airliner over the Scottish town of Lockerbie.

Megrahi died in Tripoli earlier this month, three years after Scottish authorities released him on the grounds he was terminally ill and did not have long to live. He had returned to a hero's welcome in Tripoli.

Megrahi's release caused a storm of anger in the United States, where many of the victims of the Lockerbie bombing were from. The U.S. Senate Foreign Relations Committee launched an inquiry into whether there was any connection between Megrahi's release and BP winning the exploration deal in Libya.

The company and the British government have always denied any connection between the two, although BP did say it lobbied for Megrahi's transfer to Libya.

SECURITY SITUATION 'MANAGEABLE'

Libya now is preparing for its first ever democratic elections, but the new government is weak and struggling to keep in check armed volunteer militias.

A BP spokesman said security was going to be "the determining factor on how quickly we move."

"At the moment we feel security and safety is sufficiently manageable."

It was likely to be months before BP had everything in place to re-start its exploration work, the spokesman said.

"The first thing we need to do is re-establish the contracts for drilling and logistics," he said.

"We need to get contractors back in for the onshore and offshore drilling .. Then it's back to work as soon as possible."

Shell said its decision to pull out of its Libyan contracts did not show any lack of faith in the oil sector, and said it would keep an office open in Libya to look into new deals.

In a statement, the company said it would abandon drilled wells and stop exploration on its two Libyan licenses. It said its departure had nothing to do with security issues and was taken on a purely commercial basis.

"Despite an extensive seismic and drilling campaign in these licenses, results have been disappointing and further exploration cannot be economically justified," a Shell spokesman said. "We have agreed to actively pursue new upstream business opportunities."

Asked about Shell's decision, NOC chief Berruien told Reuters by telephone: "All I can say right now is that Shell is not withdrawing from Libya. They are staying."

Source: Reuters

www.soclibya.com 

Libya's NOC confirms 'routine' probe into oil contracts with foreign majors

Libya's prosecutor general is reviewing oil contracts with international oil companies concluded by the ousted regime of Moammar Qadhafi as a routine measure, the National Oil Company's marketing director Ahmed Shawki said Monday.

"We don't have any information about actual investigations inside the NOC. We don't have any issues so far with the international oil and gas contracts, and business is going forward," Shawki told Platts by telephone from Tripoli.

He was commenting on a report in the Wall Street Journal that the transitional government in Tripoli and the US Securities and Exchange Commission were investigating the activities of a number of oil companies such as Italy's Eni, the biggest operator in Libya, and France's Total.

The Wall Street Journal in a report Sunday quoted Abdelmajeed Saad, the deputy Libyan prosecutor, as saying that the companies were being investigated for alleged "financial irregularities."

The newspaper cited a March letter from the prosecutor's office to the NOC internal auditor asking him to supply oil company documents. It said the letter mentions oil transactions between NOC and international traders Vitol and Glencore as examples of documents it was seeking. It added that while the probe is focusing on Qadhafi-era contracts, the letter indicates that the request includes activities during the civil war last year.

But Shawki stressed that the work being carried out by the prosecutor general was a routine review of all production-sharing contracts and oil sales contracts as part of the transitional government's commitment to transparency and to make sure there were no irregularities.

"So far, I don't believe NOC has any problems with international oil companies, or contracts signed during the Qadhafi regime," Shawki said.

"As I said before, this is just a routine due diligence work done by the General Prosecutor for financial and contractual irregularities, and nothing more than this," he added.

Shawki said he could not comment about oil sales contracts concluded by the transitional government during the crisis because he was not involved. 

Neither Glencore nor Vitol could be contacted for comment because of the Easter holiday.

However, both Total and Eni have said that they are cooperating with the SEC investigation.

Eni said in a Form 20-F filing to the US SEC last week that on June 20, 2011, it received from the US regulator "a formal judicial request of collection and presentation of documents (subpoena) related to Eni's activities in Libya from 2008 to 2011."

It added that the subpoena "is related to an ongoing investigation without further clarifications nor specific alleged violations in connection to 'certain illicit payments to Libyan officials,' possibly violating the US Foreign Corruption Practice Act." The company had further received a request at the end of December 2011 for collection of further documentation aimed at integrating the previous subpoena, it said.

"Eni is fully cooperating with the US SEC," it said.

Total also referred to an investigation in similar filing to the US SEC.

"In June 2011, the US SEC issued to certain companies, including, among others, Total, a formal request for information related to their operations in Libya. Total is cooperating with this non-public investigation," the French major said without elaborating further.

The investigation comes at a crucial time for the new Libyan leaders as they try to grapple with a surge in violence in the aftermath of the revolution, which ended in October with Qadhafi's ouster and death. 

It also comes as Libya, an OPEC oil producers and major exporter to Europe, is ramping up its oil production, currently estimated at 1.4 million b/d, just short of a pre-crisis level of 1.7 million b/d.

Source: Platts 

No new Libyan oil round for at least a year

Reuters reported that Libya has enough companies exploring for oil and will not hold any licensing rounds for at least a year as it waits for demand prospects to improve, the OPEC member's top oil official said on Thursday.

"Our effort now is to develop what we have, rather than trying to find more new oil," Shokri Ghanem told Reuters after a meeting of the Gas Exporting Countries Forum in Doha.

Asked when a new round may be held, he said: "Not before one year. When you see the demand in the world is enough to absorb the available or excess capacity, then we will move".

After years of diplomatic isolation, Libya has opened up Africa's biggest proven oil reserves to dozens of foreign energy firms in a series of hotly-contested exploration rounds.

Those companies accepted tight revenue shares and an unpredictable, opaque operating environment for access to some of the world's most promising acreage.

Lower oil prices have made for a rockier ride this year for the foreign companies investing billions of dollars in Libya. Major firms operating there include BP, ENI and ExxonMobil.
Libyan leader Muammar Gaddafi briefly raised the idea of oil sector nationalisation, and a dispute with Canadian oil firm Verenex ended with shareholders forced to sell the company to Libya.

The western-friendly Ghanem stepped down for a few weeks and his authority was challenged by a new Supreme Council for Energy Affairs (SCEA).

In another measure that rattled international energy firms, a government directive appeared stating that foreign joint ventures must have a Libyan national as chief executive.
Ghanem, chairman of Libya's state National Oil Corporation (NOC) since 2006, moved to reassure foreign oil firms on Thursday.

"Foreign companies working in Libya, especially in exploration, they will not be compelled to have a Libyan CEO. The oil industry is in a special situation. This is more about other sectors."
Neither existing nor new joint ventures in the oil industry would be affected, he said.

"It is of course a hope, an aim, that we see some Libyans being the CEOs of companies in Libya but of course we appreciate in the meantime the special nature of the oil companies."

OIL POLICY

Ghanem said NOC was still in charge of oil policy, playing down the role of the SCEA which is dominated by conservatives close to Prime Minister Al-Baghdadi Ali al-Mahmoudi.
"It is the NOC that is now responsible for the policy and the practices of the oil industry in Libya," he said.

Asked if decisions were approved by the SCEA, Ghanem said: "No, by the cabinet. Otherwise it is the NOC which oversees the activities of the companies which suggest to them proposals."
The creation of the SCEA led to speculation that Libya's powerful old guard was trying to undermine the authority of Ghanem, who foreign investors see as a sympathetic partner.
Investors were also worried that if the council took an active role in decision making it could further slow the pace of energy project approvals.

Sluggish bureaucracy aside, the drop in oil prices has led Libya and other OPEC members to look again at some investments to boost oil production.

Ghanem said on Saturday that Libya would not meet a 2012 oil output capacity target of 3 million barrels per day.

When oil prices peaked, national oil companies decided it was worth producing more and many new investment projects were studied, Ghanem said on Thursday.

"But then there were cost increases and oil prices went down," he said. "There is also a glut in capacity ... so it became non-economical to pursue so many expansions."

Slow progress sows doubts on Libyan oil prospects

* 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