- The Washington Times - Thursday, December 25, 2003

LONDON (AP) — U.S. oil companies have chafed for more than 17 years at sanctions that forced them to abandon prolific oil fields in the Libyan desert.

Now, after Libya’s surprise agreement to abort its programs for weapons of mass destruction, the companies can foresee their return to a country of promising and barely explored petroleum wealth.

The Libyan government, desperate to boost its oil exports, is eager to have the companies back. Libya produces less than half of its 1970 peak of 3.3 million barrels a day. With fresh investment, analysts say, it once again could become a leading producer.

The announcement last week of Libyan leader Moammar Gadhafi’s diplomatic concession could provide the opening that both sides have been seeking.

“This recent development has certainly made things more positive, and the outlook is more promising for a potential lifting of sanctions sooner rather than later,” said Occidental Petroleum Corp. spokesman Larry Meriage.

Los Angeles-based Occidental is one of four major U.S. oil companies that withdrew from Libya in June 1986, two months after U.S. jets bombed one of Col. Gadhafi’s palaces in retaliation for the death of U.S. soldiers in a bombing in Germany.

Occidental made several large discoveries there, with reserves totaling almost 4 billion barrels, and Libya’s light, low-sulfur crude commanded a premium on world markets.

“These discoveries really launched Occidental into the international arena. Before that we were primarily a domestic oil company,” Mr. Meriage said.

Three of Occidental’s rivals — Amerada Hess Corp. of New York and the Houston companies Marathon Oil Co. and Conoco Inc. — produced oil jointly as the Oasis Group, together with Libya’s state-run National Oil Co. Before sanctions took effect, the partners pumped about 850,000 barrels of oil a day.

All four U.S. companies say they have abided by sanctions against the North African country but suggest that they would hurry back if given the chance — although U.S. officials have not said if or when they will lift the restrictions.

“The events that took place Friday are very encouraging,” said Marathon spokeswoman Susan Richardson. Sam Falcona of ConocoPhillipps, Conoco’s successor, described Libya’s overture as “a positive step.”

Despite Libyans’ resentment at U.S. sanctions, they never seized the property and installations that the American oil companies left behind. Analysts say that is because the country values the technical expertise and financial resources of U.S. companies — even ahead of some non-U.S. oil companies.

“They have always said, ‘Come back. We are looking after your assets.’ They did not nationalize them,” said Manouchehr Takin, an analyst at the Center for Global Energy Studies in London.

Several foreign competitors are active in Libya, including Italy’s ENI and French heavyweight Total. Libya pumps about 1.5 million barrels of crude a day, or 2 percent of world supplies, and is the second-largest oil producer in Africa behind Nigeria.

However, U.S. sanctions have taken a heavy toll. The 1996 Iran Libya Sanctions Act stifled foreign investment by threatening sanctions against any company investing more than $40 million in Libya’s energy industry in any one year.

From 1995 to 2002, Libya had just one-fourth the number of oil wells drilled in neighboring Egypt, and two-thirds the number of wells in Algeria. Its proven reserves are estimated at a modest 30 billion barrels, compared with 113 billion barrels in Iraq, but analysts say this reflects a dearth of exploration.

The lifting of sanctions also might allow Libya to develop its natural-gas reserves and resume efforts to export liquefied natural gas.

Mr. Takin estimates an inflow of post-sanctions investment would enable Libya to increase its daily oil output to more than 2 million barrels within a few years. Such growth would create a headache for Libya’s fellow members in the Organization of the Petroleum Exporting Countries, as Libya’s current OPEC production quota is 1.3 million barrels a day.

In the meantime, Americans are trying to extend their claims in case sanctions continue. Amerada Hess’ 50-year contract will expire in 2005, and the pace of the company’s discussions with the National Oil Co. recently has intensified, said Amerada Hess spokesman Jay Wilson.

U.S. companies are interested in more than just picking up where they left off, said George Beranek of PFC Energy, a Washington consultancy.

“It’s not just getting back into these assets,” he said. “It’s having them as a platform for further growth in the country.”

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