Oxy reaches agreement on abandoned blocks

05 August 2005
California-based Occidental Petroleum Corporation (Oxy)is set for a full return to the three oil concessions that it was forced to abandon in the mid-1980s when US sanctions were imposed on the country. 'We have agreed with National Oil Corporation (NOC)to resume operations of Occidental's historical oil assets in Libya. We expect formal approval from the government in the very near future,' Oxy chairman Ray Irani said on 22 July during a presentation to US analysts.

Occidental was forced to abandon three exploration and production sharing agreements in 1986 when former US president Reagan banned all direct economic activities between the US and Libya. Oxy's three concessions, which were signed in the early 1970s, covered about nine fields. The operations have been managed and operated by state-owned Zueitina Oil Companysince the withdrawal. Gross production from the three concessions is about 70,000-80,000 barrels a day (b/d), of which Oxy's share will be 12,000-15,000 b/d.

'We will re-enter under the terms of the existing agreements,' said Irani. 'They will continue for the remaining term, until 2009-10. The plan now is to begin a second stage of negotiations to look at potential investments and enhanced oil recovery. This is the beginning. We are going in with the old asset that will give us about 12,000-15,000 b/d. Then we will work our plan with NOC about how we should proceed with respect to the existing asset and also looking at other assets in the country that we can improve. Our return to Libya will allow us to discuss these [additional opportunities].'

The move caught analysts by surprise. Oxy's negotiations have trailed the larger Oasis consortium, which reached agreement with NOC in December 2004 for its four members - Cononco, Marathon Oil Company, Amerada Hessand Grace Petroleum- to return to their former operations. The US firms had secured an agreement allowing them to re-enter the country on new terms, including a 25-year extension to their existing concessions. However, the deal was rejected in February by the General People's Congress (GPC). The combined former assets of the Oasis group produce about 300,000 b/d and are operated by the state-owned Waha Oil Company.

'Oxy and NOC reaching an agreement is a milestone but it is not a done deal until it receives government approval,' says a Tripoli-based oil executive. The Oasis agreement was rejected because the GPC said NOC had only been mandated to negotiate a 10-year extension. By agreeing to re-enter on the original terms, Oxy has sought to get around the issue.'

After winning nine exploration licences in January with some very aggressive bids, Oxy is investing a lot of faith in the country (MEED 4:2:05).

Irani said exploration work on the nine blocks secured in January would begin soon. 'The plan is to begin seismic datagathering in the near future and begin exploratory drilling early next year' (see Special Report, pages 30-32).

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