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Financial Times: BP returns to Libya with gas exploration deal

By Rebecca Bream andBen Hall in London
Published: May 30 2007 03:00 | Last updated: May 30 2007 03:00

BP yesterday said it was set to announce a $900m gas exploration deal with Libya, a country it withdrew from more than 30 years ago when its leader Col Muammar Gaddafi nationalised the oil industry.

The deal came as Tony Blair, the UK prime minister, began a tour of Africa with a visit to Libya and is a further sign of Tripoli’s increasing ties with the west after decades of isolation.

Mr Blair said the planned deal would have been “unthinkable” only a decade ago, but was the product of a “transformed” diplomatic, security and commercial relationship between Libya and the west.

It is one of a series of commercial contracts for UK companies to be unveiled during a visit to Africa by Mr Blair.

The prime minister’s visit to Tripoli kicked off his last international tour before he stands down on June 27. It is intended to underline his foreign policy achievements and to build momentum for fresh commitments on climate change and aid to Africa ahead of next week’s G8 summit of industrialised nations in Germany.

Mr Blair’s tour will include Sierra Leone, where he deployed UK troops in 2001 to curb civil violence, and South Africa, where he will be seeking strongerAfrican and international action to end fighting in Darfur and an economic crisis in Zimbabwe.

Mr Blair regards Libya’s emergence from pariah status as a vindication of his activist foreign policy and tough stance against nuclear proliferation, which has been rewarded by close co-operation on counter-terrorism between London and Tripoli.

Major oil companies including Royal Dutch Shell, Eni and ConocoPhillips have been moving back into Libya since the US lifted sanctions against the country in 2004. One oil analyst said yesterday that BP was in fact “a little behind the curve”.

BP withdrew from Libya in 1974 when the oil industry there was nationalised by Col Gaddafi.

Libya is attractive to foreign oil companies because it has large oil reserves and is more open to investment than some other Opec members. The country’s Sirte basin is the largest oil field in Africa, holding 22 per cent of the continent’s 300bn barrels of reserves. Much of Libya’s oil is located onshore and close to the surface, making it relatively low cost to extract.

But foreign companies already operating in Libya are finding high taxes and royalties mean their profit margins are lower than they might have expected.

Analysts said BP needed to expand in new areas, especially as there was a risk it could be stripped of its licence to exploit one of its main Russian assets, the Kovykta gas field, as soon as this week.

“As Russia becomes more of a risk, BP’s portfolio starts to look weaker compared with Shell’s,” said Oswald Clint, oil analyst at Sanford Bernstein.

Copyright The Financial Times Limited 2007

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