THE WALL STREET JOURNAL: Shell to Return to Libya With Natural-Gas Deal

THE WALL STREET JOURNAL: Shell to Return to Libya With Natural-Gas Deal

By BENOIT FAUCON

DOW JONES NEWSWIRES

May 3, 2005

LONDON — Royal Dutch/Shell Group Monday said it reached a comprehensive agreement for natural-gas exploration and liquefaction with Libya’s National Oil Co., its first major project in the country in 30 years.

The return to Libya may help boost the oil major’s dwindling reserves and strengthen its position as the world’s largest producer of liquefied natural gas, or LNG.

Under the 30-year agreement, which confirms a preliminary deal signed in March 2004, Shell will upgrade the Marsa Al-Brega LNG plant at a minimum cost of $105 million.

The Anglo-Dutch company said the expenditure could rise to $450 million, eventually increasing the plant’s output from 700,000 tons a year to 3.2 million tons. The agreement also grants Shell natural-gas-exploration rights in five blocks, covering 20,000 square kilometers at a minimum commitment cost of $187 million.

The blocks, located in Libya’s main producing area, the Sirte Basin, are “expected to contain material hydrocarbons volumes, mainly gas but also potentially oil,” a Shell spokesman said.

Shell also said that, subject to natural-gas availability, it will undertake jointly with National Oil the development of a new LNG facility.

The exploration deal alone is for seven years and drilling is expected to start in 2007, said Matthias Bichsel, Shell’s director for global exploration, during a conference call.

Overall, Libya has 36 billion barrels of oil reserves — the world’s eighth largest — and 1.3 trillion cubic meters of natural-gas reserves.

The deal strengthens Shell’s position as the world’s No. 1 LNG producer, said Bruce Evers, an analyst with Investec Henderson Crosthwaite. In the first quarter, the company sold 2.88 million tons of LNG world-wide and struck a $6 billion deal with Qatar for another LNG project.

The alliance is “essentially a production-sharing agreement,” said a Shell spokesman, adding the company has an entitlement on the natural gas extracted from Libya fields for its LNG plant during the upgrade of Marsa Al-Brega.

Linda Cook, Shell’s executive director for natural-gas and power, said “the plan is that all gas discovered will be used by the LNG plant.”

Shell needs to rebuild its hydrocarbons asset base after it announced a reserves replacement ratio of 45% to 55%, before factoring in the impact of year-end pricing and divestments for 2004.

Apart from a small exploration spell in the late 1980s, Shell hasn’t been present in Libya since the country’s oil industry was nationalized in 1974, the Shell spokesman said. In January, Shell failed to snare a block when it bid for some of the 15 exploration areas put up for tender by Libya, the first oil and natural-gas licensing round since international sanctions were lifted last year.

Write to Benoit Faucon at [email protected].

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