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Title: With Sanctions Lifted, Big Oil Lines Up to Do Business with Libya's Qaddafi , Sunday Business (United Kingdom), Jun 20, 2004
Database: Newspaper Source
Jun. 20--Squinting against the harsh Libyan sun, the American oilmen emerge from a line of idling black Mercedes sedans and make their way into a low-slung building near Tripoli's sleepy international airport.
This is the home of Libya's National Oil Corporation and the US executives in their starched white shirts and dark suits have come from Texas and California to see one man: Abdulla Salem El-Badri, the company's chairman.
He is the gatekeeper to Libya's energy industry and since the Bush administration eased the 18-year-old embargo against Libya last April, El-Badri's appointment book has read like a Who's Who of Big Oil.
Among the most recent visitors was Occidental Petroleum chief executive Ray Irani, who came to Tripoli at the end of May to meet El-Badri, Libyan leader Colonel Muammar Qaddafi and other top officials. It was Irani's second trip to Tripoli this year. He received special approval from the US to visit last March, leasing a Swiss plane because it would have taken weeks to get Washington's permission to fly the Oxy corporate jet to Tripoli and the ever competitive Irani was eager to be the first major American chief executive to return to Libya.
It looks as if Irani's race to Tripoli is about to pay off. El-Badri says Occidental is ahead of its rivals in negotiating a deal and could sign an agreement in the next few months to resume production. Irani is more cautious about the timing, but Occidental has already appointed a senior executive to run its Libyan operations. "On both the Libyan side and our side, there's a great desire for Oxy to return," Irani said in Tripoli. "And when there's a desire, things can happen."
For Occidental and other American oil giants like Exxon Mobil, ConocoPhillips, Amerada Hess, and Marathon going back to Libya would mean more than just clinching a deal to enter a new market. American companies made the North African country into an oil powerhouse in the 1960s and 1970s, and booming sales of Libya's black gold helped turn Oxy and its legendary chief executive Armand Hammer into household names.
After nearly two decades as a province more remote than Siberia for American oil companies, Libya is on the verge of resuming its historical role as a major source of energy for the US. With gasoline prices averaging more than $2 a gallon across the United States, that's good news. And it could also be a tremendous opportunity for the companies now negotiating with Qaddafiunless it turns out, as recent reports about a Saudi plot suggest, that he hasn't really turned his back on terror. If that happens, Americans could end up walking away from Libya empty-handed, much as they did after sanctions were imposed in 1986.
But it's easy to see why they would take the risk. At their peak in 1970, fields operated by Oxy produced 660,000 barrels a day, more than the company's total oil production last year. Today those old fields, operated by National Oil, produce fewer than 100,000. Libya's oil industry is in dire need of new investment, which is one reason Qaddafi renounced his earlier efforts to acquire nuclear arms and agreed last year to co-operate closely with American weapons inspectors.
"The Libyan oil industry needs a lot of investment," says Ghanem, Libya's new prime minister.
"American oil companies will be able to spend and can take risks." At the same time, says Ghanem, "Libya needs to be exposed to international society and foreign investors."
The White House has its own needs: Eager for partners in the war on terror, especially in the Arab world, the Bush administration has moved quickly to lift most economic sanctions against Libya and eliminate travel restrictions. Although Libya is still branded a "terrorist nation" by the US, it may soon reopen the Washington, DC, embassy that President Reagan ordered closed in 1981.
Moreover, with an election-year uproar over high petrol prices and Saudi Arabia experiencing a wave of attacks, the prospect of a secure source of fresh petroleum may be enough to help the administration forget Qaddafi's past support for terrorists. Libya's high-quality, low-sulphur crude is ideally suited to meet the needs of US refineries. What's even better for American oil companies is that tankers from Libya can reach US ports in half the time it takes ships coming from the Gulf. And with estimated reserves of roughly 36 billion barrels the 9th largest in the world. Libya is not about to run out of oil anytime soon.
Although the sanctions were only eased on 23 April, Tripoli's one business-class hotel the brand-new Corinthia is filled with US executives hunting for deals. Representatives from telecom companies are here and Coke is already being bottled locally. Not surprisingly, the lawyers aren't far behind major US firms like White & Case, Vinson & Elkins, and Baker Botts have all sent partners to Tripoli.
But it's the oilmen who are leading the way. ChevronTexaco has sent a team, according to El-Badri, and he expects Exxon Mobil shortly. Besides Occidental's Irani, the bosses of Marathon, ConocoPhillips and Amerada Hess have also been to Tripoli in recent weeks. The latter three companies form the Oasis Group, the other major American oil operator when the sanctions went into effect in 1986. At the time, both Oasis and Occidental signed standstill agreements with the Libyan government that froze the companies' stakes in Libya for the eventual day of their return. Libyans and Americans alike expected the embargo would be a short-term affair.
"Nobody thought it would be for 18 years," says Irani.
Because output has gradually waned since then, the concessions once run by the Americans don't hold the same appeal they did. In addition, more sophisticated seismic techniques may reveal that the blocks Oasis and Occidental committed to exploring back then may not hold as much oil as first thought.
Libyans like El-Badri want the Americans to simply pick up where they left off. Says El-Badri: "We told them: 'You left in 1986, so why not come back with the same conditions'?" That's not likely to happen, because Oxy has also changed. The company is more focused on domestic production today and doesn't venture abroad unless there's a big benefit to the bottom line.
"It's quite clear that Libya is very important in Oxy's history and vice versa," says Irani. Nevertheless, he warns that "there's no point in going outside the US unless there are higher returns. High risk should mean high reward."
Unfortunately for Irani, Oxy's old contract was anything but generous. Irani won't go into details, but one oil executive close to the negotiations says following the old agreement would mean a margin of about $2 a barrel for Oxyfar less than the $5 to $10 margin that most companies demand these days.
So now Irani and the other American executives are hoping to iron out new deals that will let their companies return on sweeter terms and with the potential to develop new fields, rather than simply going back to the old concessions. While El-Badri is confidently predicting that a deal with Occidental could be signed this summer, Irani hopes it will happen before the end of the year.
"We're assuming we are coming back," he allows. "Otherwise, we wouldn't be assigning personnel here."
IF Sirte Oil's Brega plant on the shores of the Mediterranean resembles an Exxon facility in Texas, that's because Brega was an Exxon facility until the company withdrew in 1982 as relations between Washington and Tripoli were deteriorating. Signs on the walls of the control room still read Esso Libya (Esso is Exxon's brand name outside the US), and Sirte managers talk fondly about the trips they made to Texas for Exxon training in the late 1970s. Unlike at petroleum operations in other developing countries, there are no pools of oil on the ground at Sirte's Brega plant or toxic fumes filling the air.
Even more impressive: The control rooms in Brega brim with modern computers running Windows' software and digital monitoring systems. While sanctions crippled Iraq's oil industry, the embargo against Libya proved as porous as the sedimentary rock that holds its oil.
"I don't see that we've had any difficulty getting what we wanted," says one Libyan manager. "It just means more lead time and more money." In some cases, a lot more.
Buying embargoed American oil parts often meant markups of as much as 300 percent. But with oil exports generating $30 million to $40 million a day over the past several years, finding the money wasn't a problem. Nor was using third-party suppliers or the European subsidiaries of American firms.
Along with its emphasis on technology, Sirte's corporate culture would be familiar to anyone who knows the ways of Exxon chief executive Lee Raymonda relentless focus on maintenance and safety, a no-nonsense formality among top managers, and offices where floors are polished and everything runs like clockwork. There's even a formal dining room with waiters and chefs on hand for executive banquets, just like in Dallas.
Despite the 1986 US raid on Tripoli by US jets, the embargo and Qaddafi's reputation among Americans as "the mad dog of the Middle East", in Ronald Reagan's famous phrase, Libyans themselves are oddly nostalgic about America's one-time domination of their oil industry. "American oil companies were the first to come to Libya and the first to export from Libya," says prime minister Ghanem. Now, he says, the US companies "are coming back home".