Libyan state oil firm considers foreign merger

31 October 2008
Libya's National Oil Corporation chairman Shokri Ghanem says it will join up with an international energy major within a decade.

Libya’s state-owned National Oil Corporation (NOC) is considering merging with an international oil company to secure the investment and expertise required to develop the country’s energy sector.

Ghanem tells MEED the state-owned body would consider a merger with a company such as Italy’s Eni, but stresses that any potential deal is at least five years away.

“We would look to conduct a merger with one of our international oil company allies in the next five to 10 years,” says Ghanem.

“It is something that I think a lot of us [national oil companies] will look at, not now, but certainly in the future.”

In October, the Central Bank of Libya invested E50m ($64m) in Eni and suggested it was open to acquiring more of the company’s shares in the future. NOC recently extended Eni’s oil and gas concessions in Libya by 25 years, as part of an agreement that gives the Libyan company a greater share of the venture’s profits.

The Italian firm is now the biggest foreign oil operator in Libya, with production of 550,000 barrels a day (b/d) and an expected investment outlay of $14bn over the next decade, which is mostly aimed at boosting Tripoli’s natural gas export capacity.

Ghanem says that while national oil companies hold enormous reserves, they will struggle to develop their hydrocarbon resources without closer interaction with oil majors.

“IOCs are more capable financially than us and also have technical expertise,” he says. “You cannot argue with that, and eventually I will look for a merger of a [national oil company] like ours and an IOC to create a new sort
of company.”

Paulo Scaroni, chief executive officer of Eni, tells MEED the company expects to always have a strong relationship with NOC, but declined to speculate on the prospect of a merger with the firm. “We have been in Libya for many years and have a special relationship with NOC, which I am sure will carry on for a long time,” he says.

Tripoli aims to boost its oil production to 3 million b/d by 2012, from 1.8 million b/d today. But analysts say output is unlikely to surpass 2.5 million b/d within that timeframe.

However, Ghanem says Libya remains on track to boost output significantly. “We are moving ahead with our all plans and are receiving strong support from our partners,” he says. “We remain in a good position.”

Eni is one of several oil majors active in Libya. Ghanem says NOC’s seven-year, $2bn exploration and production agreement signed with BP in 2007 has now moved into the exploration and appraisal phase. “BP is drilling now,” he says. “It has brought its drilling vessel to Libya and work is going very well.”

BP’s acreage, split between the offshore Sirte and Ghadames basins near the Tunisian border, has the potential to be one of the largest energy deals awarded in the country (MEED 8:6:07).

Ghanem confirms that under BP’s contract, development plans have been drafted for downstream investment of up to $25bn, including pipelines, processing facilities and up to four liquefied natural gas (LNG) trains. “It is a very promising area that BP is looking at, and we are sure there will be more investment to come,” he adds.

During the initial exploration phase, BP will acquire 5,500 kilometres of 2D seismic data and 30,000 square kilometres of 3D seismic data, along with drilling up to 18 exploration wells.

Ghanem says a downstream deal has also been concluded with UAE-based Star Consortium for the upgrade of the Ras Lanuf refinery. “We concluded the agreement and now the handover is starting,” he says. “It is moving ahead.”

The consortium, a joint venture of TransAsia Gas International and Star Petro Energy, will revamp the existing plant to bring it up to its design capacity of 220,000 b/d, and improve the marketing of its products (MEED 15:7:08).

It follows the project management award to the US’ Foster Wheeler on 23 October for the development of a separate 200,000-b/d refinery in western Libya, which stalled earlier this year after bankers pulled out of exploratory talks (MEED 23:10:08).

The deal for the Zuwara refinery in the Melitah region was signed by Foster Wheeler, Zwara Oil Refining Company (Zorco), the project’s promoter, and Libyan petroleum trader Oilibya.

One executive working on the project says the cost of the refinery is expected to be $4-5bn, with the final figure largely hinging on the scope of the facility.

“We are looking at 200,000 b/d as the base case, but that could change down the line depending on the feedstock availability we have at the time, and how the market for financing works out,” the executive tells MEED.

Nigeria’s Africa Finance Corporation and Citadel Capital of Egypt both decided against investing in the plant earlier this year, following initial talks (MEED 15:2:08).

The refinery, located near the Tunisian border, is expected to process local crude into diesel for export to Europe, and gasoline for the US, as well as boosting the country’s refinery capacity to nearly 600,000 b/d.

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