Libya Looking for Success Formula

Big Steps Taken, But Journey Continues

Libya fell off the map for many exploration companies in the 1980s and ’90s. Political roadblocks and unattractive licensing offers discouraged outside investment.

That changed with the lifting of United Nations-imposed sanctions in 2003 and most U.S. restrictions the following year, coupled with a move to clearer concession terms.

Today, this North African country with a Mediterranean climate couldn’t be hotter for exploration.

Two successful licensing rounds in 2004-05 brought the global industry back to Libya, including heavyweights like ExxonMobil, Chevron, ConocoPhillips and Statoil.

Extensive seismic work that started late last year may unearth some promising new prospects, according to Don Hallett, a London-based geological consultant with experience in Libya.

“Libya is very backward technologically compared with areas like the North Sea,” Hallett said. “They suffered from lack of investment and lack of access to modern equipment. As a result of that, there are a lot of opportunities to be exploited.

“For instance, 3-D seismic has not been extensively used in Libya,” he noted. “That immediately opens up a whole new area of opportunity.”

Shell EP Libya expects to acquire almost 8,000 square kilometers of 2-D seismic and 3,300 of 3-D seismic by mid-2007. In addition, Shell plans to capture 68,000 kilometers of aeromagnetic data.

The large-scale seismic acquisition effort going on in Libya right now also involves work by BGP International, PGS Exploration, WesternGeco and Veritas DGC.

Block Party

Libya’s National Oil Company (NOC) hopes to increase the country’s oil production to two million barrels/day within five years, a level not reached since 1979.

Oil accounts for 90-95 percent of Libya’s total exports, much of it going to Europe.

Drawing on his decade of experience with a state-controlled Libyan oil company, Hallett wrote the book Petroleum Geology of Libya, published in 2002 by Elsevier Science.

Will the latest licensing rounds and seismic programs bring Libya back to prominent oil production?

Hallett is skeptical.

“Libya does have the largest reserves in Africa, larger than Nigeria,” he said. “There’s still lots to go for in Libya, but these latest offerings are not going to accomplish what NOC wants.”

The problem, according to Hallett, involves the quality of acreage offered in Libya’s last two licensing rounds.

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Libya fell off the map for many exploration companies in the 1980s and ’90s. Political roadblocks and unattractive licensing offers discouraged outside investment.

That changed with the lifting of United Nations-imposed sanctions in 2003 and most U.S. restrictions the following year, coupled with a move to clearer concession terms.

Today, this North African country with a Mediterranean climate couldn’t be hotter for exploration.

Two successful licensing rounds in 2004-05 brought the global industry back to Libya, including heavyweights like ExxonMobil, Chevron, ConocoPhillips and Statoil.

Extensive seismic work that started late last year may unearth some promising new prospects, according to Don Hallett, a London-based geological consultant with experience in Libya.

“Libya is very backward technologically compared with areas like the North Sea,” Hallett said. “They suffered from lack of investment and lack of access to modern equipment. As a result of that, there are a lot of opportunities to be exploited.

“For instance, 3-D seismic has not been extensively used in Libya,” he noted. “That immediately opens up a whole new area of opportunity.”

Shell EP Libya expects to acquire almost 8,000 square kilometers of 2-D seismic and 3,300 of 3-D seismic by mid-2007. In addition, Shell plans to capture 68,000 kilometers of aeromagnetic data.

The large-scale seismic acquisition effort going on in Libya right now also involves work by BGP International, PGS Exploration, WesternGeco and Veritas DGC.

Block Party

Libya’s National Oil Company (NOC) hopes to increase the country’s oil production to two million barrels/day within five years, a level not reached since 1979.

Oil accounts for 90-95 percent of Libya’s total exports, much of it going to Europe.

Drawing on his decade of experience with a state-controlled Libyan oil company, Hallett wrote the book Petroleum Geology of Libya, published in 2002 by Elsevier Science.

Will the latest licensing rounds and seismic programs bring Libya back to prominent oil production?

Hallett is skeptical.

“Libya does have the largest reserves in Africa, larger than Nigeria,” he said. “There’s still lots to go for in Libya, but these latest offerings are not going to accomplish what NOC wants.”

The problem, according to Hallett, involves the quality of acreage offered in Libya’s last two licensing rounds.

Blocks become available in Libya under Exploration and Production-Sharing Agreements (EPSA). The country has gone through several EPSA variations and adjustments.

Its largest-ever offering of 135 blocks occurred in 2000 under EPSA-3 guidelines, Hallett noted.

“They spent a lot of time and effort, and they were only successful in the end in licensing 23 of those blocks,” he said.

NOC then initiated a new round under EPSA-4 in 2004, offering 15 blocks of one degree latitude by one degree longitude.

Companies could bid on a cost-recovery basis, with signature bonuses required, Hallett said. NOC set predetermined work programs and minimum expenditure levels on each block.

“They had a tremendous response to that. They got rid of all 15 blocks – and frankly, those blocks have high-risk, frontier acreage,” Hallett observed.

“NOC has declared its objective to increase production to two million barrels a day by 2010 and to end the depletion of reserves.

“This is not likely, especially in regard to reversing the depletion of reserves,” he added.

A Trap Play?

The second EPSA-4 round in 2005 offered 29 licenses covering 44 smaller blocks, Hallett said. NOC approved bids on 40 of those blocks.

Most of the companies winning licenses were European or Asian, with ENI and Statoil each acquiring eight blocks. NOC expected to receive more than $100 million in cash signature grants from that round.

EPSA-4 has included some areas formerly assigned to Libya’s state-controlled development companies, according to Hallett.

“The whole shift has moved away from these state oil companies, now that they have been sidelined by NOC,” he said, although they may control as much as 40 percent of Libya’s reserves.

Reserve estimates should be considered fluid, with most estimates of Libya’s proved oil reserves falling between 35 billion and 40 billion barrels.

Hallett said NOC puts reserves at 38 billion barrels, which he called “very optimistic, indeed.” Muhammad Ibrahim heads the Target Exploration consulting group in London. He also doubts that seismic acquisition can generate the results Libya wants.

“Seismic is not the solution. You’re going to spend a lot of time and money on seismic,” he said.

Ibrahim has extensive experience in Libya, working first with Mobil and then Veba Oel. He discussed some potential prospects in Libya at the 2005 AAPG annual meeting in Calgary, Canada, in his paper “Unconformity Traps Potential of Sirte Basin, Libya.”

Sirte contains about 80 percent of Libya’s known reserves and accounts for 90 percent of the country’s oil production, according to the U.S. Energy Information Agency.

Ibrahim, like Hallett, believes Libya still holds abundant opportunity for exploration.

“We all left something behind,” Ibrahim said.

“We have had a problem exploring stratigraphic traps there,” he added, “and I think there are a number of stratigraphic traps left to explore.”

Virgin Territory

Successful exploration in Libya probably will require a 21st century exploration approach instead of 20th century methods.

Ibrahim said earlier explorers would abandon a play if they drilled the top of a structure through to basement, instead of going down the side of the structure to find the pinch-out trap.

In that regard, much of Libya could be described as lightly explored.

“Look at it from a historical point of view. We did not pursue some prospects that were far away in the desert,” Ibrahim observed.

“And, looking at the distribution of the exploratory wells, you can see that people only drilled two or three wells and then moved on,” he said.

Based on their experience, observations and knowledge of the local geology, Ibrahim and Hallett each identified the same area of Libya as most promising.

“My conclusion is that if we’re going to find a giant, it’s probably going to be offshore,” Ibrahim said.

Except for one limited area of production, “the rest of the offshore is fairly underexplored, and there are opportunities there – some next-play concepts that haven’t been tried,” Hallett agreed.

Relearning Process

The industry considers much of the offshore gas-prone, and Libya may become know for gas exports as well as oil production.

Libya was the second country in the world to export LNG, but could not maintain the technical expertise and equipment to continue large-scale production.

Now several countries want to re-establish LNG as a major export.

Shell’s current seismic work supports a gas exploration and production program tied to LNG.

Much exploration activity still targets oil, and Hallett said Libya continues to be attractive “in the sense that it is close to European markets, in the sense that it has good-quality crude.”

Ibrahim sees Libya as an attractive place for explorers to work and live, as well.

“Libya actually is a holiday compared to some other places in the world,” he said. “The weather is kind and the beaches are fantastic. The food is fresh and nice, and the air is clean,” he said.

Companies re-entering Libya should be aware of the many changes that have taken place in the country’s oil industry, Hallett said.

State-controlled oil companies still hold a large amount of prospective acreage in Libya, but “there’s been a big transformation in the way exploration has been handled in the past few years,” he observed.

Despite the good response to EPSA-4, he doesn’t consider the latest licensing rounds especially favorable to the industry.

Hallett said more promising results would come from three additional moves by Libya:

  • Offering better acreage in future licensing rounds
  • Opening the possibility of joint ventures
  • Allowing outside investment in field rehabilitation projects.

NOC reportedly will offer a third EPSA-4 round in 2006, and may open up some known but untapped oil accumulations to development by foreign companies.

New exploration probably won’t begin in earnest until the 2006-07 seismic programs are completed and evaluated. Statoil said it expects to drill the first exploration tests on its blocks no earlier than 2008.

Companies absent from Libya for decades will go through a relearning process, with little experience to draw on.

“The old hands who taught me are either retired or dead. There has been a gap in passing the knowledge,” Ibrahim said.

He thinks exploration success in Libya will require “a new way of thinking,” with approaches different from the ones major oil companies tried earlier.

“You can’t have the same old way of thinking (in Libya) if you are an exploration manager. And that’s true of several countries in the Middle East,” he said.

“Everybody is going to come back with their background and try to apply it,” he said. “But Libya is a very difficult country to explore.”

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