Occidental has agreement to resume Libyan operations

Aug. 1, 2005
Occidental Petroleum Corp. will be the first US-based oil and gas producer to resume operations in Libya, said company officials July 29.

Sam Fletcher
Senior Writer

HOUSTON, Aug. 1 -- Occidental Petroleum Corp. will be the first US-based oil and gas producer to resume operations in Libya, said company officials July 29.

The company had to leave its operations in the prolific Sirte basin in 1986 when the US government barred US firms from doing business in Libya. Occidental already has "technical teams" in the country to assess the condition of its exploration and production properties, said a company spokesman. It should "not take too long" to resume operations, he told OGJ.

Occidental negotiated an agreement with Libya's National Oil Corp., effective July 1, to resume operations under the terms of the previous "standstill agreement" that preserved its claim to the licensed properties. However, Occidental officials declined to say whether the company would pay the "return fee" previously demanded by NOC.

The fee was a sticking point in earlier negotiations with US oil companies. US companies said NOC should take into account that producing fields held under the standstill agreement will now require expensive enhanced oil recovery. Occidental declined to reveal any details or conditions of its settlement with NOC.

Production boost
Resumption of its Libyan operations will add net production of 12,000-15,000 b/d of oil to Occidental, officials said. It also "holds significant potential for future production growth" through investment in enhanced oil recovery.

Ray R. Irani, chairman, president, and chief executive, said: "This agreement, which follows our success in winning interests in 9 of the 15 exploration blocks awarded in Libya's recent licensing round, is an important component in our growth strategy in one of our core regions. The old contract areas, which include four exploration blocks, plus the nine new exploration blocks, encompass an area of approximately 130,000 sq km, making Occidental the largest net working-interest holder of oil and gas acreage in the country."

Earlier this year, Occidental, Chevron Corp., and Amerada Hess International Ltd. won interests in 11 of the 15 exploration permits awarded to 12 non-European companies in Libya's first licensing round since US sanctions were lifted in 2004 (OGJ Online, Feb. 7, 2005).

Occidental's assets in the Intisar-103 and Epsa fields now reportedly produce 85,000-100,000 b/d of oil, down from 660,000 b/d in 1970 and 155,000 b/d in 1986, said the US Energy Information Administration in a Feb. 25 report. Occidental proposed last December to invest $2 billion in developing those fields, EIA said.

Since Occidental left Libya, its producing properties have been operated by an NOC subsidiary. Although Occidental retained its contractual rights during the sanctions era, officials said, it derived no economic benefits from those operations.

Exxon and Mobil¿now ExxonMobil Corp.¿withdrew from Libya in 1982 after the US government imposed a trade embargo in retaliation for suspected terrorist activities. Five other US companies¿Amerada Hess, Conoco Inc., Grace Petroleum Corp., Marathon Oil Corp., and Occidental¿remained in Libya until President Ronald Reagan ordered them to cease activities in 1986.

Conoco, Amerada Hess, and Marathon made up the Oasis Group, which was reported to produce 1 million b/d of oil in 1969 and 400,000 b/d in 1986. "Today, the Oasis ('Waha' in Arabic) fields produce around 300,000-350,000 b/d," said EIA.

The Oasis Group's Libyan oil field leases expire this year, EIA reported. However, Amerada Hess included 20,000-25,000 b/d of Libyan production in its corporate assumptions for 2005, despite the lack of a final agreement on returning to its fields. In early February, Amerada Hess said the economic terms for reentry were completed, while Marathon and ConocoPhillips expressed hope that negotiations could be completed within months.

In the absence of US oil firms, Libya has depended heavily on non-American companies. Leading foreign oil producers in Libya include Italy's Eni SPA, which has been operating in the country since 1959, France's Total SA, and Repsol YPF SA.

First fields
Oil exploration in Libya began in 1955. Libya's first oil fields were discovered in 1959, and oil exports began in 1961. Libyan oil production in 2004 was estimated by EIA at nearly 1.6 million b/d, with net exports of 1.34 million b/d, primarily to Europe. Libyan oil exports to the US totaled 34,839 b/d in May after resuming in June 2004 for the first time in 2 decades.

Libya has said it needs $30 billion in foreign investment to help increase its oil production capacity to 2 million b/d by 2008-10 and to 3 million b/d by 2015. It is considered generally a highly attractive oil province due to its low cost of oil recovery (as low as $1/bbl at some fields), the high quality of its oil, its proximity to European markets, and its well-developed infrastructure.

If Libya reaches 2 million bbl/d in oil production capacity, it would be back at a level not seen since the late 1970s. During that decade, Libya's revolutionary government imposed tough terms on producing companies, leading to a slide in oil field investments and production—from 3.3 million b/d in 1970 to 1.5 million b/d in 1975, before rising again to 2.1 million b/d in 1979. During the 1980s, Libyan oil production averaged 1.2 million b/d, rising to 1.4 million b/d in the 1990s, EIA reported.

Contact Sam Fletcher at [email protected]