CanOxy acquires Libyan farmout from Bula

Where CanOxy is acquiring a farmout in Bula's Libyan acreage [221,422 bytes]

A Canadian firm and its Irish partner may be the latest targets of U.S. ire over U.S. sanctions targeting oil and gas investment in Iran and Libya.

A unit of Canadian Occidental Petroleum Ltd. has acquired from Bula Resources (Jersey) Ltd., Dublin, a farmout on two blocks in important Libyan basins. The G and U blocks lie in the Ghadames and Sirte basins, respectively (see map, p. 41).

An outcry in the U.S.-and retaliatory criticism from the European Union-followed an agreement by France's Total, Russia's Gazprom, and Malaysia's Petronas to develop gas off Iran earlier this month (OGJ, Oct. 6, 1997, p. 31, and Oct. 13, 1997, p. 34). Petronas was incorrectly identified as an Indonesian company in the earlier reports.

The Total deal apparently violates the 1996 Iran-Libya Sanctions Act, which requires the U.S. to apply sanctions against domestic or foreign firms that invest more than $40 million/year in either nation's energy sector. The U.S. has accused Iran and Libya of sponsoring international terrorism.

Whether CanOxy and Bula run afoul of the U.S. sanctions law remains to be seen, as neither disclosed potential annual spending levels related to their Libyan exploration program. The U.S. State Department recently said it would consider levying sanctions on non-U.S. companies that invest as little as $20 million/year in Iran's oil and gas-apparently leaving the Libyan threshold at $40 million/year (OGJ, Aug. 18, 1997, Newsletter).

Even if spending levels fall short of the U.S. law's threshold, the latest deal raises the stakes further in an increasingly contentious dispute between Washington and some of its key allies regarding energy and other investments in countries at odds with the U.S. on a number of policy matters.

Deal details

Bula and the National Oil Corp. of Libya (NOC) reached an exploration and production sharing agreement (EPSA) on the blocks last year. Bula's farmout with Canadian Petroleum North Africa Ltd. gives CanOxy the option to earn an 87.5% interest in the EPSA.

According to Bula, CanOxy "will carry Bula through the committed work program and will also provide further loan financing to Bula, as required, for all additional exploration and appraisal expenditure, together with any development expenditure, until the commencement of commercial production."

Block G covers an 8,328 sq km area in western Libya. U covers 173 sq km in the western Sirte basin, near export pipelines. "Both blocks are highly prospective areas of Libya for oil and gas exploration," said Bula.

Exploration work will begin following ratification of the EPSA by the General People's Committee of Libya. Plans call for shooting at least 1,250 km of seismic and drilling three exploratory wells.

CanOxy will operate the exploration program.

The acreage

Bula has been seeking prime exploration and production acreage in Libya for 3 years. The company believes both G and U blocks are "highly prospective."

As a result of previous drilling, says Bula, Block G holds numerous shows and two oil accumulations.

"This area is close to analogous Algerian production located to the west of G block," said Bula. "The block contains multiple reservoir targets, and good reservoir quality has already been established in the basin."

A pipeline has been proposed to the Mediterranean coast from Wafa gas field, discovered by Libyan state firm Sirte Oil Co. (OGJ, Mar. 4, 1996, Newsletter). Plans call for shipment of Wafa gas to Italy via a trans-Mediterranean line (OGJ, Oct. 13, 1997, Newsletter).

The U block lies at the end of a trend of large reefal oil fields. "Maps indicate that the conditions necessary for reef building extend through the block and that reef-like structures are present in this block," said Bula. "Within these structures there are at least three prospective horizons."

Any potential development on Block U could use the extensive pipeline network in the area.