Concern that BP’s mega gas exploration and development deal may be delayed by the apparently never ending Lockerbie affair adds to the view that success in the Libyan hydrocarbons sector is hard to achieve, even for the biggest, best-supported operations in the business, writes John Hamilton.

International oil companies remain bullish about Libyan opportunities, but major players canvassed by African Energy in Tripoli expressed an almost fatalistic attitude to the lengthy and unpredictable business of not just securing a deal with the authorities, but making it work.

A prime example of the nerve and patience needed to make headway in the politicised and opaque environment of the Great Socialist People’s Jamahiriya is the $900m deal BP signed with National Oil Corporation (NOC) in June to the accompanying fanfare of then UK prime minister Tony Blair’s visit to Revolutionary Leader Muammar Qadhafi (AE 116/16). Half a year on, the deal is still awaiting final ratification, despite BP being partnered by the sovereign wealth fund now called Libyan Investment Authority (LIA).

A BP spokesman told African Energy “the agreement has received approval from the Council for Oil and Gas Affairs [Coga]. It has also been approved by the full General People’s Committee [government]. It is now progressing to the next and final stage in which it is formally entered into the records.”

However, the Tripoli rumour mill is alive with speculation that this apparently formal procedure could be highly protracted for political reasons.

Following investigation of these reports, African Energy understands that the ‘Brother Leader’ may be delaying final approval of the BP agreement in an attempt to apply pressure on the United Kingdom to return convicted Lockerbie bomber Abdelbaset Ali Mohammed Al-Megrahi, currently imprisoned in Scotland, to serve out the remainder of his sentence in Libya.

“It wouldn’t be the first time a government had put pressure on commercial interests for political ends,” commented one Libya-based western IOC executive.

BP is doing what it can in the meantime. A company spokesman said it was attempting to put all the commercial aspects of the deal in place to be ready to move forward immediately ratification came through. “We hope to have contracts for seismic work ready to start sometime early in the New Year,” he said.

Uncharted waters

A significant constraint on progress for IOCs comes from the difficulty of negotiating what are still uncharted, even unchartable, political waters in the Jamahiriya (State of the Masses) .

The key body which oversees energy policy from a political perspective is Coga, chaired by General Secretary (Prime Minister) Baghdadi Al-Mahmoudi, who is widely rumoured to be out of favour with the leadership and due to be replaced. Coga, created in mid-2006, has the authority to rule on any matter dealing with oil, gas and products. But there is little information about how often this potentially highly influential council has met. According to one anecdote doing the rounds in Tripoli, not even all its members are able to say for sure even whether or not they sit on Coga.

Libya remains the focus for intense competition from IOCs and emerging players in the market.

In late October, NOC chairman Shukri Ghanem discussed increasing Russian investment in the sector with Russia-Libya Business Council co-chairman Ara Abramyan. They agreed to establish a joint oil and gas working group to study the state of basic oil infrastructure and prospects for drilling operations.

Libya’s economic reformists are keen to signal the Jamahiriya can accommodate a wide range of incomers.

Intense competition

Political uncertainties aside, NOC’s senior management has established a reputation for professionalism. However, the company is under-staffed and key decisions are taken by a relatively small number of people. This may be the reason why NOC has stuck with its competitive bidding structure, which is transparent and relatively easy to manage, even though it may bring some long-term disadvantages.

The most significant downside to a successful short-term strategy is that a few years in, some frontier plays are not looking so good. It may have been more productive to have encouraged bidders to invest more and bring more technology to the difficult areas while maximising competition for the easier plays.

One source commented that the large number of IOCs now present was unsustainable and consolidation was inevitable. “We will soon see the ‘attrition’ of some IOCs that secured over-competitive licenses and are now getting disappointing results from exploration wells,” a country manager commented. He added: “We are going to see whether the story is Libya the next big thing, or Libya, not quite what we had hoped."