Libya: Oil Zone, War Zone, Or Both?

Includes: COP, ENIA, HES, MRO, SU, TOT
by: Michael Fitzsimmons

According to the US Energy Information Agency ("EIA"), OPEC member Libya has the largest oil reserves in Africa with 47.1 billion barrels of proven reserves (Source:Oil and Gas Journal as of January 2012). That said, much of Libya still remains unexplored as a result of past sanctions, disagreements with international oil companies ("IOCs"), civil unrest, and political discord.

Libya was producing 1.65 boe/d prior to the civil unrest which started in February of 2011. Its close proximity to European markets, its high quality light-sweet crude (high API gravity, low sulfur content), and its low cost of production (as low as $1/barrel at some fields), make Libya a highly attractive place to do business. These positives are counter-balanced by violent attacks by Islamic fundamentalist groups as well as governmental and security uncertainty.

85% of Libyan oil production is exported to the European market. Libya provided 11% of the EU's oil imports in 2010, making it the third largest exporter to the EU behind Norway and Russia. As the following graphic shows, Libyan production has bounced back very quickly from the 2011 disruptions:

Many foreign oil companies do business in Libya, although few of them break out production results by country. Some of the companies with significant production in Libya include Repsol (OTCQX:REPYF), Marathon (NYSE:MRO), Hess (NYSE:HES), Enersis (ENI), ConocoPhillips (NYSE:COP), Suncor (NYSE:SU), and Total (NYSE:TOT).

The Waha Oil Company ("Oasis")

The Waha consortium consists of the state-owned National Oil Company ("NOC") and American firms ConocoPhillips, Marathon, and Hess. Waha's total production capacity is more than 350 thousand boe/d. According to the Waha Oil Company, the four main fields in order of production size are Waha, Gialo, Dahra, and Samah. Waha-operated fields, which are all located in the Sirte basin, were among the last to restart, in late 2011 and early 2012. Production had been hindered by a labor strike and infrastructural damage, particularly to its export outlet at the Es Sider terminal. Nonetheless, production has since risen rapidly to around 300 thousand boe/d.

Conoco Phillips does report production by country. In its supplement to Q4 earnings, COP reported production in Libya was back to 45,000 boe/d. This compares to production of 46,000 barrels of oil and NGLS along with 8 MMcf of natural gas in Q4 of 2010 prior to the turmoil.

Repsol operates in Libya through a consortium (Akakus Oil Operations) that includes 50 percent ownership by NOC and smaller stakes by other international oil companies. The company's significant production capacity of approximately 350 thousand boe/d includes El Sharara, which restarted in October 2011. Repsol fields are located in the Murzuq basin in Libya's southwest, an area over which federal authorities have little control. Indicators of the region's security situation include reports that militias are securing oil fields, and the brief kidnapping of an Akakus official. Despite considerable challenges, production from Akakus fields is thought to total 300 thousand boe/d as of May 2012.

Eni's works in Libya with arrangements between the NOC and Mellitah Oil & Gas, which is occasionally referred to as "Agip." Its largest field, Elephant (El Feel), is in the Murzuq basin and restarted in November 2011, despite some looting and damage to support facilities. The Sirte Basin fields operated by Eni, were among the first to restart after hostilities abated in September 2011. Eni also operates the Bouri field in the offshore Pelagian basin. The Eni-operated NC-118 block in the Ghadames Basin is one of the few new projects currently proceeding, but has a projected peak production capacity of only 10 thousand boe/d. Eni's oil production capacity is just over 300 thousand boe/d, of which nearly 50 thousand boe/d is condensate and the remainder is crude. In 2009, the Libyan government invested in Eni and a former executive of the company's joint venture, Abdul-Rahman Ben Yezza, was named interim oil minister in November 2011.

Harouge is a joint venture between Suncor and the NOC. Harouge operates various fields in the Sirte basin, of which Amal is the most significant. Current production is thought to be slightly below full capacity of approximately 100 thousand bbl/d. In its Q4 2012 earnings release, SU reported Libyan production of 44,400 boe/d, its highest level since the merger with Petro-Canada in 2009.


Libya is a country rich in reserves of highly desirable light-sweet crude. Production costs are low and its proximity to the EU provides a ready market for its oil and gas. IOCs continue to invest and work in Libya. In December 2012, Eni presented Tripoli a 10-year investment plan worth $8 billion. In addition to the IOCs, the Saudi Arabian government recently announced its intent to help Libya recover from the war.

Libya clearly needs revenue from its oil and gas reserves to help rebuild the country. It also needs the investment and technology of international oil companies ("IOCs"). Real progress in growing oil production will likely depend on country's ability to solve its security and institutional challenges. The recent tragic attacks and loss of life in Benghazi, Libya and Armenas, Algeria were a rude wakeup call to both Libya and the IOCs. Security must be taken up a notch. If the country and oil infrastructure can be secured, a cohesive government formed, and if rational contracts can be made with IOCs, the sky is the limit for future Libyan oil production. Risky? Of course. Worth it? For some of the companies mentioned in this article - you bet.

Disclosure: I am long COP, SU. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am an engineer, not a CFA. Please do your own research and contact your investment adviser. I am not responsible for investment decisions you make