Bloomberg: Libya Cuts Share of Oil Output for Occidental, OMV (Update5)

By Sonja Franklin Maher Chmaytelli

Nov. 26 (Bloomberg) — Occidental Petroleum Corp. and Austria’s OMV AG agreed to reduce their share of production from an oil venture in Libya, holder of Africa’s largest petroleum reserves, to reflect record prices.

Los Angeles-based Occidental and Vienna-based OMV, which are jointly developing fields in the central region of Sirte, agreed to take a smaller share and increase production from the project, Libya’s state-run National Oil Corp. said today on its Web site. Occidental is the fourth-largest oil company in the U.S., and OMV is the largest in central Europe.

The two companies received a revised contract for 30 years that calls for $5 billion in investments over five years to triple daily output from the Sirte Basin to more than 300,000 barrels of oil, according to separate statements from OMV and Occidental. The companies will contribute a combined 50 percent of the investment, and National Oil will provide the rest.

Occidental and OMV said they will receive 10 to 12 percent of gross production from the project, depending upon the field. Libyan leader Muammar al-Qaddafi met Occidental Chairman Ray Irani yesterday and briefed him on the agreement, Tripoli-based National Oil said.

“None of these companies disclose the exact terms of any contracts, but I assume that the terms are getting tougher and tougher,” said Fadel Gheit, an analyst at Oppenheimer & Co. in New York who rates Occidental shares at “neutral” and owns none. “The Libyans know that they are in the driver’s seat, so they are squeezing as much money out of these companies as they can.”

Soaring Oil Prices

Occidental’s 10 to 12 percent share of gross production is after taxes and compares with a higher percentage before taxes under the old agreement, company spokesman Chris Stavros said without elaborating.

“I wouldn’t describe it as a deterioration of terms,” he said in interview. “We’ll be able to produce more and book additional reserves. We have access to very prolific producing areas and fields under the new agreement, which includes our old fields and some new fields as well.”

Under previous contracts, foreign companies received as much as 49 percent production from oil ventures in Libya.

Contract Negotiations

Libya is negotiating contract renewals with seven companies to secure better terms as oil prices soar, National Oil Chairman Shokri Ghanem said earlier this month. The North African country agreed to jointly invest $28 billion with Italy’s Eni SpA to expand oil and natural-gas production part of a contract renegotiation.

Oil futures traded in New York have soared 60 percent this year, touching a record $99.29 a barrel on Nov. 21. The January contract settled at $97.70 today.

“We can’t apply the same terms when oil is sold at $20 a barrel and when it’s sold at more than $80,” Ghanem said in a telephone interview on Oct. 15.

Given the surge in prices, the international companies are still going to earn a profit from production in Libya, Oppenheimer’s Gheit said.

“These companies obviously never dreamt of $100 oil,” he said. “Ray Irani is saying that even at much lower oil prices they are going to have decent returns.”

Occidental fell $2.83, or 3.9 percent, to $69.27 in New York Stock Exchange composite trading. OMV fell 7 cents to 47.01 euros in Vienna.

About 80 percent of Occidental’s production is oil.

Sanctions

Occidental resumed operations in Libya in 2005 after the lifting of U.S. sanctions imposed in 1986 following accusations that Qaddafi supported terrorism.

“This new project establishes Libya as a core country for Oxy’s production, and we believe it will open the door for us to add additional growth projects in a country with large oil and gas reserves,” Irani said in today’s statement.

Irani said Oct. 24 Occidental’s growth will depend mostly on “new opportunities” in the Middle East and North Africa and that he expected to sign agreements on projects in the regions before year-end. He has said Occidental is a “finalist” for selection as a partner to develop sour gas deposits in the United Arab Emirates.

Libya, a member of the Organization of Petroleum Exporting Countries, auctioned 50 exploration permits in the past two years to more than 40 companies including Exxon Mobil Corp., Chevron Corp., BP Plc and Royal Dutch Shell Plc. The country wants to increase oil and natural-gas output to make up for the sanctions, which damaged its industry and reduced revenue.

Libya plans to hold its first auction of rights in potentially gas-rich areas on Dec. 9.

Exxon Mobil, Chevron and ConocoPhillips are the three biggest U.S. oil companies by market value.

To contact the reporters on this story: Sonja Franklin in Calgary at [email protected] ; Maher Chmaytelli in Nicosia, Cyprus, at [email protected] .

Last Updated: November 26, 2007 16:11 EST 

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