As relations between Libya, the United States and Western Europe have warmed, oil companies are beginning to think again about exploring this desert country. Austria's OMV has been operating there for more than 25 years and regards it as a core region and has a good handle on operating conditions.

"OMV has been in Libya since 1975," explained Helmut Langanger, head of Exploration and Production for the Austrian oil group. "We had an exploration and production joint venture with Elf Aquitaine."
But OMV's presence in the country enlarged in 1985 when it bought 25% of the assets of Occidental Oil. "This provided us with oil production of 12,000 b/d."

This came about because the then Austrian Chancellor Dr. Bruno Kreisky knew the chairman and founder of Occidental (Oxy) Dr. Hammer, very well.

After operating in the United States, Hammer began talks with Libya's King Idris and picked up exploration licenses in the country, in the Sirte basin, the most prolific petroleum basin in Libya. One of Hammer's first Libyan exploration wells produced 75,000 b/d of oil on test. "That was the real beginning of Oxy," said Langanger.

Because of Hammer's relationship with the then Austrian chancellor, discussions took place over OMV - at that time still a state oil company - acquiring a quarter of Oxy's Libyan assets.

Currently, OMV's Libyan production is 24,000 b/d all of it onshore, and mostly through production sharing agreements (PSAs).

In 2003, OMV together with REPSOL acquired a package comprising six exploration licenses in the Murzuk basin, the Kufra basin, offshore Sirte basin and the Cyrenaika basin.

Other assets in Libya's oil sector include ENI Agip's offshore Bouri field, a huge oil deposit with a large gas cap. A pipeline connecting Libya to Sicily is about to take gas into the Italian market.

Also the Al Wafa field is about to be developed on the Libyan/Algerian border.

"Libya is a very sought-after place now," Langanger said.

In 1986 US President Ronald Reagan urged American companies to pull out of Libya because it was seen as a sponsor of international terrorism.

"The Libyans did not quit the contracts, they only suspended the [production sharing] agreements with three major American companies. One was Occidental, another was the Oasis group, comprising Conoco, Marathon, and Amerada Hess, and the third was Grace Petroleum.

"The companies are welcomed to return now. The Libyans never kicked them out. The American President Ronald Reagan told them to get out."

The problem for US companies returning to Libya is that they will have to be reconciled to what has happened in the intervening years as subsidiaries of the Libyan NOC operated the fields.

Americans have benefited from Libyan oil production being exported in the intervening years, where it was sold in world markets or used in refineries. And there has been continued investment in Libya's petroleum infrastructure - both capital and operational expenditure.

Libya's oil potential was further boosted by an announcement from the chairman of Libya's National Oil Company Abdullah Salem el-Badri at the end of September that another 15 new areas would be offered to international oil and gas exploration companies by the year-end.

"We aim to announce a new licensing round before the end of this year. It will probably be a further 15 exploration areas," El Badri stated at an OPEC oil conference in Vienna, according to Dow Jones.
The move followed the fourth Exploration and Production Sharing Agreements round (EPSA4) announced in August, which offered 15 license tracts with awards due January 2005. This was the first major offering since the United States lifted Libyan sanctions in April 2004. Awards in EPSA 4 will be based on signature bonuses and the percentage of oil production companies are prepared to offer the government. The license awards are expected to be an "open and transparent process."

For companies seeking to enter Libya, the prize is high. "It is a very attractive country. It has very high quality crude oil - 40? API - and it has a good, low-sulphur content and the gas to oil ratio is reasonable in most of the reservoirs so it has a highly attractive product, light, sweet crude which is sought after by the Mediterranean refineries. It is mostly higher quality than Brent." Langanger also said Libya is in an ideal situation, with its resources - proved oil reserves are put at 34.3 billion bbl in BP's 2004 statistical review of world energy - located for export to southern European countries including Italy, Greece, Spain, France, Germany and Austria. "You can easily reach those countries and there is low transport cost compared with for instance Nigeria."

Skills

Companies seeking to enter Libya should find a good skills base, too, he said, with many oil industry executives having been either trained or educated by American companies - "The Americans discovered most of the oil in the 1950s, '60s and '70s," Langanger said. Many graduated to work in either the Libyan oil ministry or for the Libyan NOC, after starting in either the United States or the United Kingdom. "They have excellent education and have been working for American companies for a number of years."

And what about succeeding in Libya? "You have to bring something to the table," said the member of the OMV executive board. "The Libyans will look carefully at an oil company's experience and expertise and at what they have been doing, and their financial and technological capabilities." Having expertise is essential. "Only then they will talk to you. Then you have to be competitive on licenses." Langanger said Libyan authorities are likely to put new entrants through "quite a few hurdles" before they are allowed to operate in the country. "They do not like license traders. The Libyans like people who are committed, who mean serious business. They want people to work for a long period of time, not just for 12 months or 3 years and if you honor that loyalty you get better treatment than a newcomer."

Asked if Colonel Gadaffi plays an active role in the oil sector, Langanger said if so, he has been invisible. "I have never come across the gentleman. I have only seen him on television." Only two Libyan government institutions, the Oil Ministry and the Libyan National Oil Company, deal with foreign companies. In EPSA's international oil companies explore, develop and operate the fields; costs and profits are shared between the NOC and the international oil companies.

In the future Langanger sees more opportunities for partnerships in Libya now that the country's gas reserves are becoming available for investment. But competition will be keen. "Many people have stayed around [in Libya] but otherwise you have to bring credentials. If you have excellent technical expertise and enough financial firepower and you have long-standing experience, then you can take part in future licensing rounds," said Langanger. "The Libyans are very professional and whoever offers the most, and brings the most to the table, their company is going to win. We want to stay there for the next 100 years."
However, he also said the Libyans stick strictly to contracts and will not change them. "They have never changed a contract unilaterally."

Meanwhile, ties between other African states and Libya have been strengthened in the recent past. In June, President Obiang Nguema of Equatorial Guinea, who was recently the target of an alleged coup-attempt led by a British ex-SAS soldier, visited Libya for talks. Reports in Equatorial Guinea indicated their talks centered on African integration and oil sector co-operation. Equatorial Guinea is Africa's third largest oil producer after Nigeria and Angola. In August, Libya re-opened an embassy in Equatorial Guinea's capital Malabo after a 20-year absence, indicating a growing friendship between the two countries.

Also the economic outlook for Libya is improving, according to the UK-based Economist Intelligence Unit. Government returns on oil receipts were expected to rise 36% on 2003 estimates, due to sustained high oil prices. For 2004, capital spending will double to US $4.48 billion said the EIU, as a development program gains momentum. "This will lift total expenditure by 37% to Libyan Dinar (LD) 15.3 billion, ($11.63 billion)," the EIU stated.

Even ExxonMobil is serious about getting back into Libya. Steve Comstock, vice president of technical computing for Exxon, in a sideways remark in a panel debate at a Schlumberger sponsored conference in Paris said, "I think most of us will be back in Libya pretty soon - and the best of luck to all of us."

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