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Libya: The oil companies are already preparing for the next licence round - update

11 Feb 2005

The ink is barely dry from Libya's most recent oil and gas licensing round, yet companies are already looking forward to their next opportunity to bid for exploration and production opportunities in the energy-rich but under-explored North African country. Industry executives and advisers are keen to see what properties will be up for grabs when Libya launches its next bidding contest next month. The world's oil majors and European companies didn't jump aggressively into the first round of Libya's so-called EPSA-4 lease program, but interest in the country remains strong. The high quality of Libya's light, low-sulphur crude, ideal for gasoline production, and the relatively quick travel time to the US, about half the time it takes Saudi crude to arrive at Gulf Coast refineries, adds to the attraction. "There remains an incredible interest in a country that went from international pariah to oil's flavour of the year and top focus area in just a couple years," said Nabil Khodadad, a partner at law firm Chadbourne & Parke, who is advising companies interested in investing in Libya. "Only two countries have the capacity to double their oil production, Libya and Iraq." Libya hopes its foreign partners and their investment dollars will help boost the country's oil production capacity to 3 million barrels a day by the end of the decade. Years of sanctions and under investment have pushed Libyan production down to about 1.7 million, about half its 1970 peak of 3.3 million barrels a day. The Libyan government estimated that it needs $30 billion of investment in its hydrocarbons sector over the next few years to boost production capacity significantly. Some 60 companies, including most US oil majors and many smaller independents, submitted bids in Libya's first exploration and production-sharing agreement auction since 2000 and the first to include US companies more than two decades. The awards were made in late January, with a big showing for the US companies. Occidental Petroleum, ChevronTexaco, and Amerada Hess won interests in 11 of the 15 permits awarded in the first round of EPSA-4. But it was Occidental, which is also negotiating with Libyan authorities to resume production at properties it was forced to abandon in 1986, that came away with the most, taking a share in nine exploration areas. Onlookers said they were stunned by the hefty signing bonuses Occidental and its partners Woodside Petroleum of Australia and the UAE's Liwa Energy were prepared to pay nearly $123 million of the total $132 million in signing bonuses offered by the winning bidders. Occidental bid for all 15 areas on offer. "It was clear Oxy was keen to get back into Libya in a big way, maybe in part to hurry along the negotiations it is having with the Libyans to get back to its other properties," said a lawyer advising some oil companies interested in investing in Libya. "All the companies were going into EPSA-4 blind, though, so it will be interesting to see what happens in this second round." Occidential's share of the signing bonuses will be under $100 million, with its partners making up the balance, spokesman Larry Meriage said, "We bid what we considered appropriate given the potential of these properties," he said. With the exception of ChevronTexaco, which won the only area it bid on last month, the world's super majors came away empty handed, mainly because they were seeking a greater share of the production. The companies chosen as winners by Libya's National Oil Company were those that sought the smallest share of production. Most of the wining bidders asked for shares of less than 20%, lower than what most bigger companies need to satisfy shareholders, who expect a higher rate of return on investment. Nonetheless, companies like ExxonMobil, ChevronTexaco and their European counterparts are expected to be bidding in the next round. "It's early days, and this is the first bid," said Henry Hubble, ExxonMobil's vice president for investor relations, who confirmed that the company placed bids in last month's round. "We're looking forward to further opportunities there." Occidental is also interested in the next round, Meriage said. Libyan Prime Minister Shokri Ghanem said in an interview last week that he expected the bigger oil companies to come in "with a heavier hand" in the next round and that Libya would be seeking their opinion on how to make future rounds more attractive. He said they may be lured in by "more promising areas which could be offered in the future. We'll be using the same EPSA model for the next two rounds, but we're evaluating the process and listening to feedback from the companies and will make certain amendments where needed," Ghanem said. The next round may give more weight to signing bonuses and pledged investment levels. Industry sources said NOC might assign a minimum signing bonus to avoid a situation that occurred in last month's round when India Oil Corp. and Oil India were awarded an area though they pledged no signing bonus. Absent from the winners' list in round one of EPSA-4 were the European companies who have been very active in Libya's hydrocarbon sector while sanctions kept US companies from doing business with the Gadhafi regime. Some of the bigger oil companies are keenly awaiting an opportunity a chance to rehabilitate some of Libya's mature fields, some of which are witnessing depletion rates of as much as 8% a year, mainly due to a lack of access to the latest enhanced oil recovery techniques. The National Oil Company is putting the final touches on a development production sharing agreement that would be applied to the three or four fields that are expected to be included in the rehabilitation work, industry sources said. The Libyan government is likely to limit participation to companies with expertise in latest drilling and enhanced oil-recovery techniques, they said.

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