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The Business: Shell battles to save gas deal with Libya

The Business: Shell battles to save gas deal with Libya

“it needs to report progress to investors battered by this year’s disastrous reserves downgrade.”: “I would imagine Shell is desperate to sign something.”

By Richard Orange

15 August 2004

SHELL will be working over the next month to revive stalled negotiations on a key Libyan investment in time for its September strategy meeting. It needs to report progress to investors battered by this year’s disastrous reserves downgrade.

Shell announced a preliminary deal to re-enter Libya in March this year after a high-profile visit by UK Prime Minister Tony Blair to Tripoli. But The Business has learnt that the agreement has stalled because of Shell’s insistence on part ownership of some of Libya’s gas fields.

The agreement envisaged a package of exploration, field development and a liquefied natural gas scheme, with an initial $200m (£110m, €166m) investment growing to $500m over the next decade.

But Shell’s proposals have been rejected by the Libyans. Joanne Finnamore-Crorkin, commercial secretary in charge of oil investments at the UK embassy in Tripoli, told The Business: “Libya didn’t like their [Shell’s] original proposal. My understanding is that they’ve heard nothing and nothing’s been agreed. Shell would have been expecting something far quicker than now.”

Tarek Hassan-Beck, head of planning at the Libyan National Oil Company (NOG), said talks had faltered over Shell’s wish to obtain part ownership at some of NOC’s existing gas fields in the productive Sirte Basin, which would allow it to show investors healthy growth in its oil and gas reserves. Hassan-Beck said: “We are not prepared to give equity to develop existing fields. That’s something we just couldn’t go along with. We are in the business of finding new reserves.”

He said the Libyans were still discussing a liquefied natural gas scheme and offering exploration blocks, but thought Shell could simply upgrade Libya’s existing plant at Marsa el Brega rather than a start new scheme.

ABN Amro analyst Peter Nicol said he believed Shell would have been aiming for a September announcement. He said: “Shell billed it as the great opening of Libya … I would imagine Shell is desperate to sign something.”

Shell, like most major oil companies, has been in Libya working upstream from the 1950s until 1974, and doing exploration work until western firms left in the late 1980s.

Meanwhile, US companies pushed out of Libya in 1986 have also been labouring under interminably slow negotiations with the Libyans since sanctions were lifted at end-February.

While Occidental Petroleum and the Oasis Group of companies, ConocoPhillips, Marathon Oil, and Amerada Hess have found negotiating with NOG relatively smooth going, sources say talks are stalled whenever agreements need approval from Muammar Gaddafi and his advisers.

Libya had wanted the original terms from 1986, but US firms apparently want them improved. Fadel Gheit at Oppenheimer brokerage in New York said: “It’s been a long time: I feel the companies had a lot higher hopes than what the Libyans are willing to give them. Libya in my view isn’t as keen for foreign capital as two or three years ago because they’ve got $45 [per barrel] oil. Their number one objective was to end the sanctions and they’ve succeeded in doing that, so really they’re in a much better negotiating position.”

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