Does Libya still hold opportunities for IOCs?
The end-July deal to reopen the ports should be good news for investors. But convincing them to return may take time
The prospect of even a semi-successful unity deal between Libya's rival National Oil Corporations (NOCs) may prove a bonanza for engineering and project management firms as producers scramble to re-open dormant fields and ports.
Some big international oil companies (IOCs) like BP and Shell have shelved their exploration plans for Libya, while producers like Eni, Total, OMV, Repsol, Wintershall have either restricted activities to offshore plays-if they have them-or watched in alarm as onshore assets are attacked or left fallow because of insecurity concerns.
Project managers that operated in Libya until the civil war will, though, expect to be at the front of the line for work on the four Ps-pumps, pipelines, ports and power generation. If peace arrives, Libya's oil sector has big plans.
France's recent shift to back the east in its fight against Islamists may put its companies, such as Schlumberger, in good position to secure post-war contracts. NOC's eastern unit Agoco, for example, thinks upgrades and key remedial work could more than double the 130,000 b/d it currently producers at the Sarir/Mesla complex of fields in the southeast.
Waha Oil Company, in the central Sirte basin, has plans-on hold because of the war-to push output from 350,000 b/d to 0.6m b/d.
For IOC producers-all of them bar Wintershall and Gazprom are part of joint ventures signed in Tripoli with NOC-any end to east-west oil rivalry will bring relief that investments can start to pay off.
Those investments are complex: a product of deals agreed by Muammar Qadhafi when an end to sanctions in 2004 allowed IOCs back to the country. Healthy oil prices and Libya's high-quality oil and relatively easy geology meant the dictator could drive a hard bargain, meeting executives in his tent to set good terms, for Libya, in exploration and production agreements.
Qadhafi demanded extra payments after Libya itself was obliged to pay compensation for Lockerbie bombing victims, meaning many contracts were only just profitable. Unsurprisingly, several of the firms that signed up now want out, notably NOC's partners in the Waha joint venture in the Sirte basin, the US' ConocoPhillips, Marathon Oil and Hess. Waha's 350,000 b/d made it the biggest producer in the basin.
But the venture's fields have been mostly shut down for the past two years, and re-opening depends on deals being agreed between Tobruk and the Western-backed unity government in Tripoli. The militia controlling Ras Lanuf and Es-Sider, the basin's two export terminals that have also been shut in recent months, is allied with Tripoli and its Dawn forces, and according to a 29 July deal will be paid to reopen them (it is thought to have received $40m already). But that doesn't mean the oil will flow: the fields themselves are under control of Operation Dignity, forces allied to Tripoli's rival government in Tobruk. Austria's OMV, PetroCanada, Total and Wintershall also have production interests in the Sirte basin, and face the same wait.
In the west, Italy's Eni and Spain's Repsol must also wait on the politics before their big joint ventures with NOC-at the Elephant and Sharara fields, respectively-are free to produce and export. In this case, Dawn controls the fields and Dignity, through its allies in Zintan, controls the pipes.
Trenches to progress
Getting the shuttered fields operating again doesn't just depend on a peace breaking out. A second problem is whether militias will shake down NOC or Tripoli before they switch on the valves.
Both IOCs and Libya's militias themselves are watching Ibrahim Jadhran, head of the Petroleum Facilities Guards militia that controls Es-Sider, Ras Lanuf and Zueitina. The PFG has no engineering or port-handling speciality, but says port security comes at a price, not just in wages but in a special payment, officially to show support for their dedication. That was the key term of his agreement with Tripoli, brokered by the UN.
Now the payment has been made, Libya's kaleidoscope of militias can be expected to call for the same special payments. NOC chief Mustafa Sanallah took aim at the deal with the "criminal" Jadhran during interview with Petroleum Economist.
Particularly galling to him was that Jadhran should be paid at all-while the Presidency Council of the Government of National Accord was at the same time withholding money NOC needs to help lift oil production.
In mid-August, a vessel was able to start loading some stored oil from Zueitina. But IOCs shouldn't expect this to mean much of an improvement in prospects.
The experience of Wintershall, once Libya's fourth-largest producer exporting 85,000 b/d from the Sirte Basin, is all-too typical. Production at its eight wells resumed after the 2011 uprising, only to be cut in July 2013 by the first of Jadhran's ports blockades at Wintershall's main outlet, Zueitina port. No sooner did Jadhran lift the blockade the following summer than other militias imposed fresh blockades, demanding cash and employment benefits.
Those disputes ended in September 2014 and Wintershall got pumping again from its Es-Sarah field, only for production to come to a halt when Libya Dawn launched its offensive against the oil ports in December.
Wintershall's foreign staff were evacuated and, with militia-run Tripoli experiencing an epidemic of kidnapping, the company's all-Libyan skeleton team work from home. In sentiments shared by many other foreign investors, its web-site notes: "The spirit of optimism and new beginnings that prevailed in the first year after the revolution in which the Qadhafi regime was overthrown has since evaporated."
This article is part of a report series on Libya. Next article: Oil crescent endgame