BP has returned to Libya after more than 30 years, the latest of the IOCs to move back to the country since international sanctions were lifted in 2004. The exploration and production agreement signed by BP, its Libyan partner the Libya Investment Corporation (LIC) and Libyas National Oil Company (NOC) on 29 May commits BP to a minimum initial investment of $900mn. This was BPs single biggest exploration commitment, said the companys chief executive, Tony Hayward, who signed the agreement in Libya alongside NOC chairman Shukri Ghanem. It coincided with the second visit to Libya of outgoing British Prime Minister Tony Blair, and followed protracted bilateral negotiations between BP and NOC over exploration acreage and gas production projects after they signed a Memorandum of Understanding (MOU) in October 2005 (MEES , 16 January 2006).
The long-awaited agreement gives BP exploration rights to 54,000 sq km of the onshore Ghadames basin in western Libya and the offshore Sirte basin in the northeast. During the exploration and appraisal phase, BP will acquire 5,500km of 2D seismic and 30,000 sq km of 3D seismic, and drill 17 exploration wells. Successful exploration could lead to the drilling of around 20 appraisal wells. Under the deal, NOC is set to receive 77.7% of eventual production, with 85% of the remaining 22.3% share going to BP and the rest going to LIC. BPs total financial commitment is expected to be well over $1bn, with $100mn alone going towards local education and training projects. But the rewards are highly promising. The Ghadames basin is thought to be part of, and similar geologically, to the prolific Illizi and Berkine basins in neighboring Algeria, where BP and Statoils joint venture 9 bcm/year In Amenas wet gas project is located (MEES , 3 July 2006).
Gas Focus
Commenting on the agreement, Mr Hayward drew attention to Libyas underexploited gas wealth. With its potentially large resources of gas, favorable geographic location and improving investment climate, Libya has an enormous opportunity to be a source of cleaner energy for the world, he said. NOC officials have increasingly emphasized the role of gas in their exploration and production plans, as did Dr Ghanem when discussing the countrys next exploration bid round, the fourth since sanctions were lifted, on 23 May. The round will focus on the regions which we hope have big quantities of gas. We are in the final stages of determining the blocks, he said. The precise commercial terms for gas production and a gas pricing formula are still under consideration, but the details are due to be announced in July (MEES , 19 March). Libyas proven natural gas reserves amount to just under 1.5 trillion cubic meters (tcm), compared with Algerias 4.58 tcm, and Egypts 1.89 tcm.
Since the 2005 MOU was signed, the discussions between BP and NOC are known to have touched on the possible construction of a new LNG plant in the Ghadames basin, although the new agreement does not mention this. While BP remains open to the possibility of selling any Libyan gas it finds by pipeline, the company is clearly keen to tap into the growing global demand for LNG, as witnessed by the MOU it signed with Eni and EGAS in April 2005 to build a second 5mn tons/year LNG train at Damietta in neighboring Egypt (MEES , 5 April 2005). Rumors circulated earlier this year that NOCs enthusiasm for any deal with BP had waned because the IOC was asking for too big a percentage of the project. However, Libya badly needs foreign investment and expertise to develop its gas infrastructure.
Shells Precedent
The only existing LNG facility in Libya is the ageing 0.7mn t/y Marsa al-Brega plant that Shell agreed to upgrade at a minimum cost of $105mn in May 2005. This figure could rise to $450mn if the plan to expand the plants output is successful. BPs agreement appears similar in character to the one signed by Shell two years ago, on the eve of the second EPSA-IV bid round. Shell acquired five exploration blocks in the Sirte basin, near the Marsa al-Brega plant, with a minimum upstream investment target of $187mn, also through direct negotiations with NOC following Mr Blairs first visit to Libya (MEES , 9 May 2005). The main difference with the previous deal is that, unlike Shell, BP is effectively starting from scratch. But as Mr Hayward pointed out, this represents a significant opportunity for BP and Libya to deliver on their long-term growth aspirations.
Both agreements reflect a burning interest among foreign companies to access the Libyas oil and gas resources, and the remarkable headway the country has made in rehabilitating its international reputation since Mu?ammar al-Qadhafi publicly renounced his weapons of mass destruction program and agreed to cooperate in the so-called global war on terror. Libya was treated as an outcast in the international community, Mr Blair said on his trip to Libya. The fact is, we need Libyas help now. There are fantastic huge new commercial opportunities.
BPs Libya Acreage
Source : BP.
