) confirmed to BusinessWeek Online.
Browne may be hoping to land a major, exclusive deal in Libya, which has exciting prospects for the oil industry and is considered underexplored. By dealing directly with Qaddafi, he may also be trying to avoid the highly competitive auctions Libya is holding for exploration rights. BP submitted bids in the recent EPSA IV licensing round but didn't win any tracts. The outfit considered the terms of the winning bids too stiff. Occidental Petroleum (OXY
), which is negotiating to recover Libyan fields dating back to the 1960s, won 9 out of the 15 blocks on offer.
INCENTIVE FOR EXCLUSIVE DEALS. U.S. oil companies pulled out of Libya in 1986 under pressure from the Reagan Administration. Now that the country has reconciled with the U.S. in a deal brokered by British officials, they are free once again to work in Qaddafi's domain.
Recently Browne has been disappointed with Middle Eastern oil ventures. He was annoyed at the long and expensive process the Saudis put the major oil companies through to try and land what are likely to emerge as marginal gas reserves. In 2003 BP and Exxon (XOM
) finally declined to participate in the Saudi gas projects -- leaving them to the Royal Dutch/Shell Group (RD
), Total (TOT
), and Chinese and Russian companies. Browne has also pulled back from another major producing country, Iran, in part because BP has such a huge presence in the U.S.
The Libyan authorities are worried that the tough terms for the EPSA IV tracts will deter the companies from developing the fields. That could be an incentive for them to ink exclusive agreements with one or more of the supermajors.
OIL MAN'S DREAM. The Libyans need to attract major investment if they are to achieve their goal of boosting production from the present 1.6 million barrels per day to 2 million barrels per day by 2008, and 3 million barrels per day by 2015. Thanks to sanctions and nationalization of its oil companies, Libyan production has fallen by more than 50% from its peak of 3.28 million barrels per day in 1970.
What does BP have its eye on in Libya? Craig McMahon, an analyst at energy consultants Wood Mackenzie in Edinburgh points to three areas. BP may want a major oil exploration deal. The London-based company could also be going for redevelopment of rundown 1960s or 1970s oil fields belonging to the Libyan National Oil Corporation. Such projects require huge amounts of capital.
Finally, BP may be angling for Libyan gas reserves. The company's crosstown rival, Shell, recently signed a gas deal with Libya.
The country is an oil man's dream. It is a nation with abundant resources and is not only near major markets, but -- now that Qaddafi has come in from the cold -- politically correct. It's a prize for which BP's chief will apparently set aside his skepticism about Mideast oil. Reed is BusinessWeek's London bureau chief