Libya oil boss sees output jump as BP, Eni may re-start soon

CAIRO (Bloomberg) -- BP and Eni could re-start work on a project in Libya in the first quarter next year, setting the stage for the OPEC member to boost production by “hundreds of thousands of barrels” a day, the head of the country’s state oil company said.

Crude production in the North African nation is averaging “well above 1 MMbpd despite local security challenges,” National Oil Corp. Chairman Mustafa Sanalla said over the weekend in a written response to questions. He expects BP and Eni to resume exploratory drilling near the Tunisian border in the first quarter. The companies, which reached an agreement on Oct. 8, could “fast-track” to production thanks to existing facilities in the area, he said.

"The deal is proof of the confidence that two of the leading oil majors have in NOC, and in Libya’s production outlook,” Sanalla said.

Political divisions and internal fighting have plagued Libya since 2011, when longtime leader Moammar Qaddafi was overthrown and killed. Libyan officials have sought to contain the violence and boost oil and natural gas output, just as impending U.S. sanctions on Iran’s energy industry and an economic crisis in Venezuela are squeezing crude supplies worldwide.

Libya pumped 1.6 MMbpd before Qaddafi’s ouster, but a spate of security issues has hobbled production this year. Output at its biggest oil field Sharara declined in July after an armed group kidnapped four workers. The NOC said this month a lack of security at the Zawiya refinery, which gets its oil from Sharara, was “not sustainable” for workers or production. The plant has capacity to process 120,000 bpd.

Brent crude, the global benchmark, has climbed almost 20% this year. The contract for December settlement advanced 0.4% to $80.13/bbl in Dubai.

BP and Eni agreed to resume work even after the Islamic State militant group claimed responsibility for an attack last month on NOC headquarters in Tripoli and said the country’s oil fields were a legitimate target.

“A number” of international companies are looking at returning to Libya, due to the country’s “low-cost-to-market” resources and comparatively small amounts of sulfur, a contaminant, in its crude, said Sanalla, who escaped unhurt from the militants’ assault.

BP had completed some seismic work at the contract areas when Qaddafi was toppled from power. It immediately halted operations, then resumed them, and then ceased activity once again in 2014 when tensions flared. Under their agreement, Italy’s Eni will buy half of BP’s 85% stake in the contract areas that covers about 20,850 square mi.

In another effort to spur production, Sanalla met with Russian Energy Minister Alexander Novak and officials of Russian companies including Gazprom and Tatneft in Moscow this month.

Tatneft confirmed the talks with NOC and is interested in “further work in Libya,” a spokeswoman said. The company suspended operations in the country in 2011 but still has assets there, she said.

PetroChina Co. agreed to buy Libyan crude, its first term contract with NOC since 2013, a person familiar with the matter said in March. BP and Royal Dutch Shell Plc reached a similar deal in January.

"There’s no question that IOCs’ risk appetite is growing again," Derek Brower, director at RS Energy Group in London, said in a text message. “It’s good news for Libya that companies are willing to take the plunge again -- and it’s also an achievement for NOC and Sanalla, given what they’ve gone through recently. But the political risks have by no means diminished."