POGC And Sonatrach Step Up Libyan Exploration; Others Wait On Sidelines

The restart of post-revolution Libyan exploration drilling has been halting. Algerian state firm Sonatrach is so far the only non-Libyan firm to return. But Poland�s POGC is taking advantage of Libya�s newly-created oil field defense force to resume operations.

By James Cockayne

POGC plans the imminent re-start of exploration activities on its Murzuq basin acreage with first drilling slated for January. This would make POGC only the second foreign firm after Sonatrach to restart onshore exploration drilling.

POGC struck a deal with Libya�s National Oil Company (NOC) earlier this month whereby the Polish firm lifted force majeure on its Area 113 (Blocks 1 and 2) exploration acreage in the Murzuq basin. Unlike several other IOCs who lifted force majeure without firm plans to resume activity, POGC delayed lifting until it was happy that the security was in place to resume a drilling campaign it had been about to commence in February last year.

Also unlike other companies who have announced provisional drilling plans, POGC�s are not predicated on improvements in security. Whilst acknowledging that �the main problem to come back was the security issue,� Jacek Gutowski, vice president of the board at POGC, says that as part of the deal struck with NOC the company�s operations will be protected by troops from Libya�s newly created oil field defense force which NOC and Libya�s ministry of defense have been jointly putting together (MEES, 26 October).

Mr Gutowski says that this �good solution� renders Libya�s current security situation tolerable. The company has begun to mobilize crews for an upcoming three-well drilling campaign and second-phase seismic. The first of the three 2013 wells will be spudded �around the end of January,� Mr Gutowski told MEES on the sidelines of the Energy Exchange�s North Africa Oil and Gas summit in Vienna earlier this month.�

�Generally in Libya the security situation is still difficult�practically every night [in the city] you hear shooting. But we have this agreement [with NOC] for this professional protection so at least we feel that we�re doing our best to protect ourselves. We implement special security procedures for example living in a special camp, banning travel to the city, traveling in convoys and so on,� said Mr Gutowski who also pointed out that security was much easier at his company�s remote drilling site than in the city.

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POCG acquired its blocks in February 2008 after the fourth and (so far) final bidding round to have been conducted under Libya�s existing Exploration and Production Agreement framework, known as EPSA-IV. As part of the 2008 award POGC committed to spending $108mn drilling at least eight wells. The company shot initial seismic in 2010 and had been about to kick off a drilling campaign in February 2011 when the Revolution got into full swing. The company was preparing its drilling rig at the time and the equipment sat out the conflict (undamaged) locked up in Misrata (MEES, 2 April).

Development Plans

Agoco, the Benghazi-based NOC affiliate, has been at the forefront of post revolution exploratory drilling including on Ghadames Basin block NC-4 (MEES, 2 November). Algeria�s Sonatrach has also resumed exploration drilling on its nearby Area 65 acreage (MEES, 11 June).

Both Agoco and Sonatrach have plans to move rapidly to production on these blocks as does Germany�s RWE-Dea with its blocks NC-193 and NC-195. Company representatives were in discussions with NOC chief Nouri Berruien in Vienna earlier this month with the aim of finalizing the German company�s $500mn plans to produce 30,000 b/d from the acreage by the end of 2017.

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France�s Total also has near-term development plans � including for Murzuq basin Block NC-191 and the deep Dahra and Garian Structures on the Mabruk block C-17. But Total boss Christophe de Margerie, speaking in Abu Dhabi earlier this month, said that although the company rapidly achieved its priority of ramping up production, something that was �definitely appreciated by Libya,� the company is �not yet� ready to �go to the next step of additional development.�

SonatrachDrilling

Algeria�s Sonatrach is gearing up to begin exploration drilling on a second front. On 10 December it closes a tender seeking service companies to aid with gas and oil well testing services related to an upcoming eight-well drilling campaign on its acreage on Ghadames Basin Areas 95 and 96. The acreage borders a part of Algeria which has massive current oil and gas production including BP�s 8 bcm/year In Amenas and the giant Zarzaitine oil and Alrar gas fields.

BP also has key interests on both sides of the border: as well as In Amenas it has the Libyan exploration acreage (�Area B�) immediately to the north of Sonatrach�s blocks. The nearest producing field in Libya is the Eni-operated Wafa field, whose 4.8bcm/y gas production is mostly exported to Italy as part of the West Libya Gas Project. This provides a potential export outlet for any future nearby production with a 32-inch gas and 10-inch condensate pipeline linking Wafa with the port of Mellitah. Politics notwithstanding extensive existing oil and gas pipeline infrastructure on the Algerian side of the border also provides a potential means of getting any future production to market.

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Sonatrach says that it expects testing for the first well of the eight-well campaign to be performed before the end of December. As with the POGC blocks, Sonatrach acquired the acreage in December 2007 as the result of Libya�s most recent bid round. Sonatrach (50% and operator) is partnered by Indian state firms Oil India and Indian Oil (25% each). Sonatrach and its partners signed up to drill eight commitment wells and spend a total of $152mn � the biggest commitment of any of the EPSA-IV awards. Sonatrach on 11 November closed a tender for the processing of seismic shot on the same Area 95/96 acreage.

Drilling Delayed

But whilst Sonatrach and POGC are moving forward with drilling, other companies are pushing back their plans to resume exploration. Several companies have blamed the lack of available rigs, but whilst availability is certainly tight this does not always appear to be the whole explanation.

Repsol�s Chief Financial Officer Miguel Martinez speaking on an 8 November investors� conference call acknowledged that due to �delays� the �several� exploration wells that the company had planned to drill before the end of 2012 � marking the start of post-revolution exploration drilling � had failed to materialize. The company now plans to restart exploration drilling in its Murzuq Basin acreage in southwest Libya early in 2013.

Rather than thinking of this as a new drilling program Repsol considers the planned upcoming wells to be a continuation of its �ongoing 15 exploration wells program� which was underway when hostilities broke out in February 2011 (MEES, 5 March).

Canada�s Suncor, meanwhile earlier this month said it was �looking to restart exploration drilling� on the Sirte basin acreage of its Harouge joint venture in the first quarter, 2013.

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Force Majeure

At least a handful of companies still have force majeure on their Libyan exploration acreage. Most, if not all, of these firms appear in two minds about whether to return at all.

Senior NOC figures are exasperated by the fact that not only does Chinese state firm CNPC still have force majeure on its offshore Area 17, Block 4 (Sabratah Basin), but that there has been little if any contact. Chinese state services company BGP (a subsidiary of CNPC) � one of the largest services firms in Libya pre-Revolution � has also failed to reappear, MEES understands. The continued absence of Chinese state firms seems to be linked to Beijing�s insistence on linking their return to the payment of compensation for losses suffered during 2011�s fighting.

NOC figures indicate that they have also had little contact from Taiwanese state firm CPC which has Area 62, Blocks 1 and 2 in the Murzuq basin.

Offshore Lethargy

Of the 15 offshore blocks acquired during Libya�s four EPSA-IV bidding rounds Russian state firm Gazprom� (Area 19, offshore Misrata) is the only company to have extant exploration plans � the planned resumption in early 2013 of a four-well drilling program that was to have started in February 2011. Nine of the 15 blocks have been relinquished � including two by Indonesian state firm Pertamina earlier this year.

Indian state firm ONGC and Brazilian counterpart Petrobras lifted force majeure in recent months but appear to have no clear plans to resume operations. ONGC in June lifted force majeure and �resumed operations� on its Area 43 offshore Cyrenaica. The firm has one outstanding commitment well to drill on the acreage. Original contract expiry was 17 April 2013, although this is likely to have been extended by at least a year to compensate for force majeure. Petrobras � the world�s leading deepwater driller � has Area 18, northeast of Tripoli in water depths of 200-700ms.

This leaves supermajor ExxonMobil (which holds Area 20, offshore Sirte) as the �wild card.� Dr Berruien says he is in the dark as to the US firm�s plans: �They should return. They have a commitment to drill a well,� he told MEES on the sidelines of the Vienna conference. ExxonMobil declined to respond to the NOC Chairman�s comments, although the presence of ExxonMobil representatives at least two Libya-focused conferences this year would appear to indicate a residual interest in the country. (ExxonMobil has no other current North African interests). In its most recent annual report the US firm says it is �conducting studies to determine the remaining prospectivity� of the Libyan acreage.

Fellow US firm Hess has so far made the only decent-sized discovery on the 15 EPSA-IV offshore blocks. NOC estimates reserves on Area 54 offshore Sirte at 5-7 tcf. Dr Berruien recently told MEES that discussions with Hess as to the development of the discovery were ongoing, whilst acknowledging that this would be difficult within the tight contractual terms the US firm initially agreed to and the 860ms water depth (MEES, 9 November). Hess in its recently-released third quarter results says that having lifted force majeure on Area 54 in March it is �pursuing commercial options� for the discovery.

Pulled The Plug

Meanwhile, of six blocks awarded to Japanese-led consortia in the four EPSA-IV bidding rounds all have now been relinquished after Inpex and Mitsui gave up their Area 113, Blocks 3 and 4 earlier this year. The only remaining Japanese stake in Libya�s upstream is Mitsui�s minority 35% stake in Wintershall-led exploration on Area 201 in the Kufra basin.

Copyright MEES 2012.