Libya may struggle to hit its ambitious oil production growth targets in coming years, even with the imminent return of US companies to its petroleum sector, industry analysts said on Friday.
With Iraq beset by security concerns and Russia's reputation suffering in the aftermath of the Yukos fiasco, Libya's appeal for international oil companies has improved at a time when the industry is struggling to replace reserves.
"The fact that Libya is now available means a lot," said Bob Ebel, head of the energy program at the Washington-based Centre for Strategic International Studies.
Libya's national oil company wants to boost oil output from around 1.5 million barrels per day now to 2 million bpd by 2010. It also says production capacity could double in a decade with big investments from US companies, the application of new upstream technology and new discoveries.
But high decline rates at Libya's state-owned fields, the uncertain condition of fields US companies left behind in 1986, and notorious government bureaucracy, are making some analysts sceptical of the country's output targets.
"It's a slightly aggressive target. Bureaucracy rules in Libya, and if that doesn't change, it's quite hard to see it happening at the moment," said Craig MacMahon, an analyst who specialises in North Africa's oil sector for consultant Wood Mackenzie.
MacMahon said simple upstream licensing rounds have taken years to complete in Libya, and that current negotiations with US oil companies for their return, as well as the upcoming Epsa-4 licensing round, are far more complex.
Epsa-4, which will offer up to 11 exploration blocks to foreign companies, was expected to occur in the second quarter but is still awaiting final government approval.
US oil companies, including Occidental Petroleum Corp, ConocoPhillips, Marathon Oil Corp and Amerada Hess Corp, were forced to leave Libya in 1986 due to US government sanctions against the country.
Those companies began talks this year on returning after the Bush administration lifted economic sanctions as a reward for Tripoli's pledge to give up weapons of mass destruction.
Occidental Chairman and Chief Executive Ray Irani recently told analysts that his company's frozen assets in Libya are in "reasonably good shape." However, due to sanctions, most fields previously operated by US firms are equipped with old US equipment and production has suffered. Sources estimate Oxy's assets, which were producing 170,000 bpd when it left in 1986, are now producing about 50,000-60,000 bpd. Enhanced oil recovery projects will be the quickest way for US companies to boost output, Ebel said. "Bringing in the latest technology and American managerial know-how is going to make a difference, but how much of a difference can it make when you're looking at a global oil market of 80 million bpd?" he said.
He doesn't expect a "substantial increase" in output or Libya becoming a major player in global oil markets by 2010.
Analysts say Libya could raise production faster by inviting foreign investment in its state oil fields, where output has been shrinking for over 30 years. At mature fields such as Brega, Sarir, Sirtica, Waha and Zuetina, output has been declining by 7 percent to 8 percent annually.
New discoveries could also help Libya reach its goals. It estimates proven reserves at 36 billion barrels, but only about 25 percent of the country has been explored, and officials say up to 100 billion barrels remain to be found. Foreign companies are attracted by Libya's high-quality, low sulphur sweet crude, which is suitable for making gasoline, and by finding costs as low as $1 a barrel.
US oil executives have been flocking to Tripoli since sanctions were lifted, and not just from major companies.
Top US independent producers such as Anadarko Petroleum Corp and Devon Energy Corp say investments in Libya are possible, as the country seeks $30 billion in foreign investment through 2010.
"Yes, we are interested in Libya's petroleum sector. We might consider opportunities if they come up," said Teresa Wong, a spokeswoman for Houston-based Anadarko, adding that a senior Anadarko executive had visited Tripoli recently to hold talks with Libyan oil officials.
Anadarko has experience working in North Africa, having operated significant oil operations in Algeria since 1991 with state oil company Sonatrach. The company also holds exploration interests in Tunisia.
Occidental and the other members of the Oasis Group - ConocoPhillips, Marathon Oil and Hess - which held a 41 percent stake in the giant Waha concession, are seen as front-runners in the US return. Majors Exxon Mobil Corp and ChevronTexaco Corp have also shown interest.
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