Libya oil production increasing at pace

27 October 2011

Total national output should hit 500,000 barrels a day by year-end with relative ease

Libya’s oil production should hit 1 million barrels a day (b/d) within a year, swiftly restoring the country’s revenue base, analysts and industry executives say.

This number is in line with forecasts made by current minister of oil and finance at the country’s National Transitional Council (NTC), the country’s caretaker government. Speaking on October, Ali Tarhouni said that state-run companies had already managed to bring oil output up 500,000 b/d, although independent analysts believe it will be November before this number is actually achieved.

Executives with knowledge of current strategy say that state oil firm National Oil Corporation (NOC) has asked its subsidiaries and partners to focus initially on ramping up at the country’s major oil fields before starting work at reservoirs, which had lower output, so as to boost total production levels as quickly as possible. With a few exceptions, most facilities and pipelines are understood to be in a relatively decent state of repair, with most damage caused to offsite facilities.

“They have done extraordinarily well so far,” says Samuel Ciszuk, a London-based Middle East and North Africa energy analyst at the US’ IHS Cera Global Insight. “The 500,000 barrels a day struck me as a slight exaggeration, but it will be interesting to see what happens, given that there hadn’t been much damage to the infrastructure. It seems like most of the damage has been limited to things such as looted offices and accommodation, although even that will take a certain amount of time to repair. It is still an obstacle, although a relatively small one.”

National Oil Corporation

Agoco, a subsidiary of NOC, has been working to restore production at the Sarir, Nafoora, Misla and Hamada fields, which it operates since the NTC-run Libyan Oil Company (LOC) was placed in charge of its operations. Agogo’s oil is exported via loading facilities at Marsa el-Hariga, next to the eastern town of Tobruk and Ras Lanuf. The company has infrastructure in place at its oil fields to produce about 400,000 b/d of oil, although it is currently producing around 200,000 b/d.

The transitional council took over the NOC completely in September and has subsequently had control of its two oil production subsidiaries, Waha Oil Company (WOC) and Sirte Oil Company (SOC).  The Waha field, which is operated by WOC, is part of a production sharing agreement between NOC and three US companies, ConocoPhillips, Marathon Oil and Hess, known as the Oasis consortium. The field, which is located in the Sirte basin, can produce about 350,000 b/d. Oil executives say that production could be ramped up 150,000 b/d with relative ease over a period of one or two months. This addition would push national output above 500,000 b/d, industry sources say.

However, WOC employees have refused to return to work, accusing the company’s chairman Bashir Alshhab of corruption and collaboration with the regime of slain former leader Muammer Gaddafi, with a newly-formed labour union saying they will strike until he leaves. The NTC had agreed to ask Alshhab to step down before performing a volte face in mid-October, saying that the time was not right for change.

Meanwhile, SOC, which controls the Wafa field development in the West of the country, is working with Italy’s Eni, a 50 per cent partner in the field, to restore production since September, with executives citing production levels of around 100,000 b/d. Eni was less fortunate with the huge “Elephant” field controlled by its subsidiary Melitah Oil & Gas, with infrastructure understood to have been badly affected by fighting in the vicinity.

Restoring output

Other international oil companies (IOCs) with interests in the country have been working to restore production, with Spain’s Repsol bringing engineers into the country in late October. The firm is focused on turning the taps on at the Sharara field it operates in the southwest of the country, which had a production capacity of about 290,000 b/d before the civil war. Sources with knowledge of the field report that it would appear to be in good repair and that production had hit the “tens of thousands” of b/d by the end of October.

Germany’s Wintershall and France’s Total have turned their attention to restoring output at the Al-Jurf oil field in central Libya, which has a production capacity of about 45,000 b/d, and may have already started producing oil, sources say. Wintershall is also moving to resume production at the nearby As-Sarah field, which has a production capacity of about 90,000 b/d.

The death of Gaddafi on 20 October should serve to reassure IOCs that the country is becoming increasingly secure. NOC executives say that the pace of progress will be significantly accelerated once expatriate workers return to Libya. To date, most work has been done by Libyan nationals and domestic oil service firms.

IOC executives have been reassured that if their contracts were won legally through the proper channels, the state is unlikely to nationalise any existing oil assets. Although the damage to most fields has been light, the NTC recognises that ramping up production is far more important than settling scores with major oil firms, says one Middle Eastern engineering executive. “[The NTC is] utterly dependent on the IOCs to restore their revenue base,” Ciszuk says.

Although reaching production levels of 1 million b/d should be relatively easy to achieve within a year given current progress, Ciszuk says that NOC will have more trouble from that point on. It is impossible to assess the damage that quickly shutting down oil production earlier in the year will have had on older oil reservoirs, he says. “It’s the last bit of production, of 1.6 million-1.7 million barrels a day that we might see a negative impact on.”

Meanwhile, a key issue for oil companies working in Libya will be making sure that the country’s network of oil and gas pipelines and export terminals are ready to transport rapidly increasing volumes of hydrocarbons.

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