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Global Insight:
Oxy, RWE, Libyan E&P gas licences

Oxy, RWE, Win Two Outstanding Gas E&P Licences in Libyan Tender.

Libya chose to award the two remaining gas exploration licences it withheld on 9 December, giving them to Occidental of the United States and Germany's RWE Gas Prone E&P Acreage, and thus evening out the tender results geographically and strategically.

Global Insight Perspective

Significance: Libya's National Oil Corp. (NOC) yesterday awarded the two exploration licences it initially held back on Sunday (9 December) when it said that it preferred the companies to act in consortia. U.S. Occidental (Oxy) and Germany's RWE were each awarded four gas-prone blocks in one contract area each.

Implications: The latest awards mean that NOC will have awarded half of the contract areas it tendered in this fourth licensing round—the first round with a clear gas focus—holding the rest back in order to assure itself of the maximum competition per area going forward.

Outlook: These two awards give a strategic and geographical balance to the results, with two private companies (one U.S., one German), one Polish national gas company and the Algerian and Russian state gas giants sharing the acreage, showing that Libya was not choosing on a basis of economy alone.

Balancing the Scales

Libya's NOC yesterday awarded U.S. IOC Occidental Petroleum (Oxy) and Germany's RWE, after first having held back the award of the two bids on Sunday (9 December), saying that it had preferred the companies to bid with consortia. Further scrutiny, however, resulted in a favourable ruling for the companies, allowing them to take on and operate the blocks alone.

Oxy was awarded Area 103, Block 1-4, in the Sirte Basin, with an area of approximately 5,000 sq. km, while RWE was awarded Area 58 in the Cyrenaica Basin (Block 1-4), close to the city of Benghazi, stretching over an area of 10,289 sq. km. There was no immediate disclosure from the companies on the size of the signatory bonuses or the production share offered to the NOC.

Although Libya certainly has been able to collect healthy production-share deals and high bonuses from the companies in the fourth licensing round—since the interest for the first ever round focusing on Libya's gas-prone tracts has been very high—the result shows that political and strategic considerations have played an overwhelming part in the award process, with the geographical spread of companies awarded representing clear Libyan strategic thinking.

Outlook and Implications

The somewhat controversial (in the eyes of a European Union increasingly worried about its gas dependence on Russia and Algeria) awarding of E&P acreage to Algeria's state-owned giant Sonatrach and Russia's gas monopoly Gazprom sent a clear signal to the two countries that Libya is open for some level of policy co-operation as it aims to further cement its role as one of Europe's leading gas suppliers, while the award of Poland's state-owned gas national PGNiG and Germany's private energy company RWE serves as a clear balance. The award of acreage to the United States's Oxy further strengthens the signal that Libya is looking for diversification among its hydrocarbons producers, as well as among its strategic alliances, and also sends a clear message to those fearing the resurgence of resource nationalisation in North Africa, that Libya will continue to keep its oil and gas sector open for private investment.

The increasingly tight margins offered to companies in Libya, pushed down by the competitive bidding, might however justify some caution for the future. Although the companies awarded in this round all have sufficient financial muscle, globally escalating operational costs, together with Libya's inadequate infrastructure and logistics capabilities, could result in squeezed finances further down the line, especially if the exploration fails to uncover significant volumes of commercial hydrocarbons.

By Samuel Ciszuk an Middle East energy analyst for Global Insight International.
(Simon.wardell@globalinsight.com). Global Insight's Energy Group provides independent, comprehensive analysis, forecasts, data, and of the worldwide energy marketsplace. Petroleumworld does not necessarily share these views.

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Petroleumworld News 12/18/07

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