Oil companies fear nationalisation in Libya

By Sylvia Pfeifer and Javier Blas in London, Financial Times

Western oil companies operating in Libya have privately warned that their operations in the country may be nationalised if Colonel Muammer Gaddafi’s regime prevails.

Executives, speaking on condition of anonymity because of the rapidly moving situation, believe their companies could be targeted, especially if their home countries are taking part in air strikes against Mr Gaddafi. Allied forces from France, the UK and the US on Saturday unleashed a series of strikes against military targets in Libya.

“It is certainly a concern. There are good reserves there,” said one executive at a western oil company with operations in Libya. “We have lost some of our production [because all operations have stopped] but our bigger concern is what will happen to the exploratory work as that gives you a future rather than the immediate impact,” he added.

Most of the world’s large international oil companies have producing assets in Libya, including Spain’s Repsol, France’s Total, and Italy’s Eni, which is the largest single investor there. Germany’s Winstershall – a unit of BASF – and OMV of Austria are also present.

The country is the world’s 12th largest oil exporter, and the escalating violence there has triggered a jump in prices to nearly $120 a barrel. More than half of Libya’s oil was exported to Italy, Germany and France last year.

“International oil companies will find themselves in a precarious position in Libya going forwards, with both the government side and the opposition now pressuring IOCs [international oil companies],” Samuel Ciszuk, senior Middle East energy analyst at IHS Global Insight, wrote in a note. “Libya’s regime has a history of treating IOCs as extensions of their home governments, which ultimately risks damaging European and US-based companies”.

Shokri Ghanem, the chairman of the Libya’s state-run National Oil Corporation, warned on Saturday that western companies, which have repatriated their staff due to the crisis, should send their employees back to work or risk seeing new oil and gas concessions awarded directly to rivals from China, India and Brazil. The three countries have all stayed neutral throughout the conflict and abstained from Thursday’s United Nations Security Council resolution 1973.

Mr Ghanem said Libya had no intention of breaking its existing commitments with foreign oil companies already operating in the country but warned that “we do hope they in turn will honour their agreements with us”.

“If they do not then we are forced to talk to others,” he added. Libyan production has fallen 75 per cent to 400,000 barrels a day since the withdrawal of employees by western companies and “could reach a halt”, he warned.

The UN has widened its economic sanctions against the regime of Mr Gaddafi, including for the first time the oil sector. In addition to the no-fly zone and threat of air strikes, UN resolution 1973 also stipulates freezing the assets of the National Oil Corporation.

While Libya’s state-owned National Oil Company controls the majority of the country’s oil production, international oil companies are key for sustaining output through joint ventures. The National Oil Company is also in full control of at least two of its subsidiaries, its wholly owned Sirte Oil, a joint venture with US-based Occidental Petroleum, and Waha Oil, a joint venture with American oil companies ConocoPhillips, Marathon and Hess.

Copyright The Financial Times Limited 2011.