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BP, Shell Plan to Resume Exploration, Boost Production in Libya

December 07, 2011, 8:58 AM EST

By Robert Tuttle and Anthony DiPaola

Dec. 7 (Bloomberg) — BP Plc and Royal Dutch Shell Plc, Europe’s biggest oil companies, aim to resume exploration in Libya, whose new government seeks to stabilize relations with foreign companies following the ouster of Muammar Qaddafi.

Both companies are evaluating whether to resume drilling at wells begun in the North African state before the outbreak of hostilities at the start of this year, BP Chief Executive Officer Robert Dudley and Shell head Peter Voser said yesterday in Doha, Qatar’s capital.

Libya, the holder of Africa’s biggest oil reserves, is restoring production after output dropped to 45,000 barrels a day, from 1.6 million barrels, after a rebellion against Qaddafi broke out in February. The loss of Libyan exports contributed to a 20 percent increase in London oil prices earlier this year.

“There is a real interest that we can deploy technology and our people and raise production,” ConocoPhillips CEO James J. Mulva said in an interview, referring to the transitional government’s plan to bring oil companies back to Libya. “We feel we can restore production and hopefully this gives us the opportunity to do even more.”

International oil companies need access to new crude and natural gas deposits to meet global demand, which is expected to grow over the next two decades, according to Dudley, Voser and Exxon Mobil Corp. CEO Rex Tillerson. The three executives were in Doha this week for the World Petroleum Congress.

Production Recovery

Repsol YPF SA, Spain’s biggest oil company, is raising output and is now pumping 200,000 barrels a day in Libya, CEO Antonio Brufau Niubo told reporters. It has a production capacity of 340,000 barrels a day, he said.

Libya’s crude output had recovered to 840,000 barrels a day by the end of last month, the state-run National Oil Corp said Nov. 30. Production may increase to 1.3 million by June, former Oil Minister Ali Tarhouni said Nov. 25, less than a week after stepping down from the interim cabinet.

OPEC Secretary General Abdalla el-Badri said Dec. 4 he expected Libya to be pumping about 950,000 barrels of oil a day by the end of this month, rising to 1.3 million barrels a day in the first quarter and to 1.5 million in the second quarter. Iran’s Oil Minister Rostam Qasemi said Dec. 5 it would take about a year for Libya to return to full production.

New Wells

BP, which signed an exploration agreement with Libya in May 2007, stopped exploration in February when the revolt broke out. The company was “on the verge” of starting to drill two onshore and offshore wells in Libya, and has now been asked by the government to return to the country, Dudley said.

“We will make a decision when it’s the right time to ensure the safety of our employees,” he said.

Shell had been drilling two wells in Libya before the unrest and was considering a restart, according to Voser.

ConocoPhillips and its partners had been producing about 350,000 barrels a day from Libya’s Waha field before violence against the Qaddafi regime broke out, CEO Mulva said. The company’s share of production was 50,000 barrels a day.

Libyan authorities “indicated that they are going to honor the contracts” that oil companies had with the previous regime, he said.

Total SA is in discussions with the new Libyan government to drill wells offshore there, said Stephane Michele, the company’s director of exploration and production for Qatar. The French company had drilled two exploration wells before unrest started and aims to resume its offshore exploration program there, Michele said in an interview yesterday.

International Sanctions

Libyan oil output, which rose as high as 3.4 million barrels a day in the early 1970s, stagnated in the 1980s and 1990s as international companies pulled out and the country was subjected to sanctions. Production remained at 1 million to 2 million barrels a day, according to BP Plc statistics compiled by Bloomberg.

A turnaround in its relations with the west came between 2002 and 2005 when Qaddafi abandoned a nuclear-arms development effort, pledged to destroy a chemical weapons stockpile and renounced terrorism. The move led to an easing of sanctions and improved ties with the U.S. and European nations.

Libya attracted investment from international oil companies including Eni SpA, BP, ConocoPhillips, Total and Repsol as the country sought to raise production capacity to 3 million barrels a day. In 2009, Libya approved a 12.1 billion-dinar ($9.8 billion) plan to develop and upgrade 24 oil fields.

–With assistance from Eduard Gismatullin in London and Wael Mahdi in Cairo. Editors: John Buckley, Raj Rajendran

To contact the reporters on this story: Robert Tuttle in Doha at [email protected]; Anthony DiPaola in Dubai at [email protected]

To contact the editors responsible for this story: Stephen Voss at [email protected]

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