07-02-06 Libya, holder of Africa's largest oil reserves, is preparing to hire foreign companies to develop more than 300 untapped fields after an increase in energy prices made it an economically viable way of raising output.
After awarding 41 exploration permits last year to almost 30 companies including ExxonMobil and Occidental Petroleum, the North African state is turning its focus to known fields that haven't been developed because they are too small, Energy Minister Fathi Ben Shatwan said. An “old'' study showed they hold at least 3 bn barrels in total, he added.
“We're taking a break'' from exploration, Shatwan said on Jan. 30. “We're thinking about giving service contracts to develop existing fields.''

Oil prices have doubled in three years, prompting companies to return to deposits that weren't considered worthwhile before, from the North Sea to the old war zones of Sudan. Libya's oil industry, seeking to rebound from two decades of sanctions, has one of the world's lowest extraction costs, in cases as little as $ 1 a barrel, according to the US Department of Energy.
“The companies stand to do some profit because the oil is already there,'' said Jason Schenker, an economist at Wachovia Corp. of Charlotte, North Carolina. “All they have to do is take it off the ground.''

At 3 bn barrels, the 300 fields amount to 8 % of Libya's crude-oil reserves or 145 days of US oil consumption. Libya, slightly bigger in size than Alaska, last year auctioned exploration plots totalling 220,000 sq km (85,000 sq miles), about one eighth of its total territory.
The contracts being considered for the smaller fields would be similar to Iran's so-called “buybacks'' and improved to make them more attractive to companies, the Libyan minister said. Unlike the exploration contracts awarded by Libya last year, those given by Iran do not allow companies to share reserves with the state. Instead, foreign companies finance development, hand over the fields to Iranian control and then recover their investmentat an agreed rate of return from subsequent production.

Libya, the eighth-largest producer of the Organization of Petroleum Exporting Countries and Africa's second-largest oil producer after Nigeria, is guaranteed to get attention from oil companies, said John Hall, managing director of John Hall Associates, an energy consultant in London. The nation has the potential to double oil output, has improved relations with the West, is geographically close to Europe and produces a grade of crude oil that is sought after by refiners, he said.
“Libya should discuss the service contracts it is studying now with the companies to make sure that they would be practical,'' said Hall. “The Iranian model has not been a success for either side, neither the companies nor the government.''

Companies tend to prefer the production-sharing formula as it allows them to add reserves to their balance sheet and ensure future business and supplies to their refineries. For energy importers like India, the second-fastest growing major economy, the priority is to ensure energy supply, said S. Roychaudhury, vice-president of ONGC Videsh Ltd., the foreign arm of Oil & Natural Gas Corp., the nation's largest oil explorer.
“Our main thrust is energy security, so our preferred formula is to lift our share of oil back'' to consumers in India, he said.

The US in 2004 lifted economic sanctions on Libya, allowing the nation to set out on a plan aimed at putting years of oilfield neglect behind it and attract investments of $ 30 bn to raise oil production to 3 mm bpd, from 1.7 mm now.
Ronald Reagan's administration imposed the sanctions in 1986, accusing Muammar Al-Qaddafi's regime of sponsoring terrorism. Libya agreed in 2003 to pay $ 2.7 bn to the families of those killed in the 1988 bombing of a Pan American jetliner over Lockerbie, Scotland, and to give up programs to develop weapons of mass destruction.

To make the new service agreements attractive to oil companies, Libya is thinking of giving them more profit than Iran and paying a fee for operating the fields, Shatwan said. The advantage of Iran-styled agreements is that companies bear all the cost of development, he said.
“As we expect to have a lot of fields in operation, we will not be able to pay for their development,'' the minister said. Libya will keep open the possibility of sharing reservoirs with companies, he said. Production-sharing agreement in existing fields will be given “in priority'' to local companies that are units of the state-owned National Oil Corp., he said.

A new energy law, expected to be adopted at the end of the year, will make provisions for production sharing and for service agreements, he said.
Iran's oil minister, Kazem Vaziri-Hamaneh, on Dec. 10 told in Kuwait that his country's contracts should be modified so companies remain involved even after they bring the oilfield on stream.