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Libya: Move May Pave Way for Return of US Oil Groups

by Kevin MorrisonFinancial Times
December 29th, 2003

Libya's pledge to dismantle its programme to develop weapons of mass destruction (WMD) could pave the way for the return of US oil companies that left the North African country in 1986 when then President Ronald Reagan imposed sanctions on the country.

The US is expected to lift the Libyan portion of the Iran-Libya Sanctions Act next year. However, this may not occur until after the presidential elections in November. The United Nations lifted sanctions against the regime of Muammer Gadaffi in September.

JJ Traynor, an oil analyst at Deutsche Bank, said talks between Libya and US oil companies could start early in the new year.

Libya has oil reserves of 40,000m barrels, about one-eighth of the oil reserves of Saudi Arabia, the largest producer in the world.

Mr Traynor said the companies most likely to seek a return to Libya are ConocoPhilips, Marathon Oil and Amerada Hess, partners in the Oasis group in Libya.

Oasis, one of the first foreign-owned companies in the oil rich country when it was opened up for oil exploration in 1955, produced about 400,000 barrels of oil a day from fields with more than 1bn barrels of oil reserves before it quit Libya.

He said Occidental Petroleum, a US oil company, would also be interested in returning to Libya. Occidental entered Libya in 1966 and was producing 70,000 barrels a day from a 250m-barrel field before it left.

"There could be complications if the negotiations steer towards compensation for the loss of oil revenue during the period of sanctions," said Mr Traynor.

Abdullah al-Badri, the former head of the state-owned National Oil Corporation, has said that if US companies want to return to Libya, they will return to the fields they used to operate in the country.

Mr Traynor said Exxon-Mobil may even return to Libya.

The two predecessors of the world's largest listed oil company both quit Libya in 1982, following a US trade embargo started in the previous year.

European oil companies have remained active in Libya during the absence of their US peers. They include ENI of Italy, Total of France and Repsol of Spain.

Libya is trying to woo international oil companies as its seeks $30bn of investment in its energy sector.

It hopes to increase oil production from 1.3m barrels a day to 3m by 2010. However, its oil target is still short of the 3.5m barrels a day it produced in 1970.

Oil export revenues account for about 95 per cent of Libya's hard currency earnings. Libya's oil refinery capacity, its gas reserves, and liquefied natural gas (LNG) industries have all suffered from underinvestment due to the economic sanctions, which included a ban on importing refining equipment.

"If they are serious about LNG, we could see Royal Dutch/Shell Group appear on the scene," Mr Traynor said. He added that Libya had seen its neighbours Egypt and Algeria develop their LNG capacity in a market forecast to grow substantially over the next 20 years. United Nations inspectors gave Libya high marks on Monday for working with them as they began checking if it had really renounced its nuclear ambitions, agencies report from Tripoli.

Libya's nuclear programme was at a very early stage, Mohammmed ElBaradei, the head of the International Atomic Energy Agency, said after touring four atomic sites. "We haven't seen any enriched uranium," he added, referring to the essential material for a nuclear bomb.

He headed a team of inspectors invited to see how far Libya had progressed in developing a bomb.

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