Oil firms 'encouraged' by recent US-Libya sanctions events

By OGJ editors
WASHINGTON, DC, Dec. 29 -- US companies with languishing Libyan investments said the country's pledge to disclose and destroy weapons of mass destruction is an encouraging sign they will be allowed to reenter the country in the not-too-distant future. But it is too soon to predict when the US government will allow them to return, industry officials said.

"It's clear that with the Lockerbie settlement and with this latest move by the Libyan government that there is certainly hope sanctions will be lifted sooner than later. But the timing is up to the US government. And nobody really knows when that will happen," an Occidental Petroleum Corp. spokesperson said.

Oxy began investing in Libya in 1966 and left in 1986. A recent analysis by Deutsche Bank Securities Inc. found that oil production from the company's two former fields collectively reached 63,000 b/d in 2003. However new gas injections and other field recovery techniques could make the production levels much higher.

Three other US companies—Amerada Hess Corp., Marathon Oil Co., and Conoco Inc. (now ConocoPhillips)—were partners in the Libyan "Oasis" oil concession that began in the mid-1950s.

Deutsche Bank estimated that the Oasis group produced about 400,000 b/d of oil in 1986 but production may now have fallen to about 100,000 b/d. Two other US oil companies, Exxon Corp. and Mobil Corp. (now ExxonMobil Corp.), left Libya in 1982 after the US imposed a trade embargo.

Like Oxy, US companies with interests in Libya say they are waiting for the US government to make the next move.

"We're very much encouraged by recent events situation tied with sanctions. And we are anxiously awaiting further information on the impact about last week's announcement," an Amerada Hess spokesperson said Dec. 29. "We've had limited contact with Libya on just technical issues; we are still prohibited from doing anything more than that but we're hopeful and excited about the potential."

ConocoPhillips said it plans to work closely with US officials to make sure the company complies with existing law when the time comes to start formal negotiations.

"While we believe recent actions are positive steps that will encourage dialogue, our return to active participation in the Oasis group's Waha concession area remains dependent upon further authorization from the US government. We have always worked closely with the US government to ensure we are fully compliant with US policy on Libya and will continue to do so," the company said in a statement.

Marathon offered similar comments: "While recent events concerning Libya are encouraging, the Oasis partners' former operations in Libya continue to be tied to restrictions associated with US sanctions. We will continue to abide by all US laws and regulations concerning Libya," a Marathon spokesman said.

ConocoPhillips holds 16.33% interest in the Waha concession area of Libya. In 1986, it suspended active participation to comply with US government's sanction policy. Other partners are Marathon 16.33%, Amerada Hess 8.16%, and Libyan National Oil Co. 59.16%.

US government reaction
US government officials meanwhile indicated that US sanctions are not coming off tomorrow or even next month. More time is needed to make sure Libya is abandoning a weapons program and rejecting terrorism.

"I think we've also made clear it may take some time to work our way through each of these issues—the various problems that we've had with Libya's past behavior, the various sanctions that we have on Libya because of that," a US Department of State spokesperson said Dec. 23.

"Each of those things will have to be looked at carefully, based on its merit and based on Libyan actions; first, Libyan actions that they have promised and that we expect will be in the area of weapons of mass destruction.

"But there are other issues involved in terms of US sanctions and relations as well, so we'll have to take the time, work our way through those things. Each decision will have to be based on its own merits. But certainly the prospect is out there of some improvement in our relations and some lifting of these sanctions if Libya meets the requirements for each and every one of them."

Current sanctions
In August 2001, US President George W. Bush signed a law updating the Iran-Libya Sanctions Act. First passed in 1996, the provision seeks to penalize foreign companies that invest $20 million in either country although ILSA gives the White House wide discretion to waive sanctions.

The latest version of ILSA also instructs Congress to consider rescinding the law before it officially sunsets in August 2006, pending the outcome of a White House sanctions report. That report must be given to Congress before March 2004.

The US also has unilateral sanctions against Libya that bar US companies from making investments. But the White House can lift those restrictions without congressional approval.

Wall Street predictions
Wall Street analysts are not expecting tangible returns for US companies until after the 2004 presidential and congressional elections. Although no one expects sanctions to be lifted during the presidential campaign, some companies are quietly urging the US government to grant a special waiver that would allow them to start negotiating fiscal terms as soon as next month. Over the past few years, companies have been allowed to make limited contacts with the Libyans over technical issues only.

Adding to the sense of urgency is the fact that the Lockerbie settlement expires in April 2004. It's anticipated that the US will need to seek an extension so that victim's families receive the full compensation promised under the deal (OGJ Online, Sept. 17, 2003).

Meanwhile, even a sanctions repeal may not necessarily mean US companies come storming into Tripoli, according to Deutsche Bank. The country does have significant underexplored acreage and 40 tcf of gas giving it high exploration potential. But like Iraq, years of US and United Nations sanctions made it difficult for Libyans to find the spare parts needed to maintain some of the fields.

"Reservoir deterioration on producing fields and tight fiscal terms mean sanctions repeal would not necessarily imply a stampede in the country," Deutsche Bank said.

Some companies however say that much of the information they have on existing fields does not even take into account what could be done with new production techniques not available in 1986.

"There's no question there's huge potential there," said an official with a company hoping to start formal negotiations this spring.

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