Libya may ask foreign firms to help revive and expand output

Oct 10, 2005 02:00 AM

Libya may ask foreign companies such as Royal Dutch Shell to help revive and expand output at fields that are losing production after more than four decades of use.
Prime Minister Shokri Ghanem said he would allow the companies to own the oil and book reserves that lie underground in so-called production-sharing agreements. Developing known reserves eliminates the risks associated with drilling in new areas. The proposal would be a first in Libya and differ from the policies of most other OPEC nations, which pay the oil companies a fee for similar services.

Years of neglect
After 11 years under United Nations sanctions, the North African state is trying to compensate for years of oil-field neglect, which has caused production to plunge. As oil demand and prices rise, Libya and other members of the Organization of the Petroleum Exporting Countries are seeking foreign help to expand supplies.
"Companies will be very keen to get their hands on existing reserves, as it gives them quick access to bookable reserves and it will improve their production outlook," said Ross Millan, an analyst at energy consultants Wood Mackenzie in Edinburgh. "The aging fields of Libya's National Oil Corp. are in need of fresh investment to reverse production declines."

$ 30 bn needed
Libya seeks to attract $ 30 bn in investments to increase its crude oil production to 3 mm bpd in 2015 from 1.7 mm now. UN sanctions, imposed from 1992 to 2003 on allegations the state sponsored terrorism, prevented the country from getting equipment to enhance oil recovery. The US began gradually last year lifting sanctions it imposed in 1986.
The appeal of Libyan crude, a high-quality blend preferred for making gasoline, is its proximity to European markets. Production costs at some fields are as low as $ 1 a barrel, according to US Energy Department estimates. Drilling started in 1955 and exports began in 1961. Output at Libyan-operated fields naturally declines by as much as 8 % a year.

No ownership allowed now
OPEC nations, including Kuwait, forbid foreign ownership of oil and gas reserves. As a result, Kuwait's $ 7 bn plan to double the size of its northern oil fields near Iraq includes service agreements, not production-sharing accords. For oil companies, production-sharing agreements are preferable because the reserves can be booked in their accounts.
Libya has auctioned permits this year to search for oil and gas in areas covering 85,000 sq miles, or twice the size of Cuba, in two bidding rounds. Previously, it gave contracts after talks with companies.

"The success of the open bidding policy will make us consider enlarging the sharing process," Ghanem said.
"There is no decision now, but the possibility of sharing in producing fields, and in fields that are discovered but not in production, will be studied."

Source: Bloomberg
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