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The New York Times: Libya Signs Energy Exploration Deal With Shell



Published: March 26, 2004


Royal Dutch/Shell signed a breakthrough deal yesterday with Libya's state oil company to explore for oil and natural gas, a plan that could give Shell access to as much as $1 billion worth of fuel in North Africa.


Abdalla Salem el-Badri, the Libyan oil minister and head of its National Oil Corporation, and Malcolm Brinded, Shell's chief executive for exploration and production, met in Tripoli to sign the deal as Prime Minister Tony Blair of Britain arrived in the city to meet with Muammar el-Qaddafi, Libya's leader.


It was the first visit to the country by a British leader since Mr. Qaddafi seized power in 1969.


The deal, which is likely to irk American energy rivals that have been gearing up to enter Libya once the Bush administration lifts sanctions, establishes guidelines for projects including onshore exploration and the export of liquefied natural gas.


It was the first time in 30 years that Shell - the British-Dutch giant, with headquarters in The Hague - had been invited to operate on Libyan soil. "I look forward to our cooperation becoming a cornerstone in a renewed trade relationship between the U.K. and Libya,'' Mr. Brinded said in a statement.


Analysts estimate that Libya, a member of the Organization of the Petroleum Exporting Countries, has production capacity of about 1.6 million barrels a day, which is about 23 percent more than its current OPEC quota of about 1.3 million barrels a day.


The country's reserve potential, however, is far larger, analysts say. "The reserves are huge'' and underused, said Bruce Evers, an analyst at Investec Investment Banking in London.


Mr. Evers said the country's infrastructure suffered from "a chronic lack of inward investment because of the sanctions'' imposed in 1992 by the United Nations in connection with Libya's role in the 1988 bombing of Pan Am Flight 103 over Lockerbie, Scotland.


Shell has been under increasing pressure to find new sources of oil after the company sharply reduced estimates of its oil and gas reserves in recent months.


"Clearly this is the biggest bit of good news that Shell has had this year,'' Mr. Evers said. "They've been stalking the Libyans ever since relations thawed.''


Angus McPhail, an analyst with ING Financial Markets in London, agreed that the deal was a welcome development for the company.


"This is potentially a very lucrative deal,'' Mr. McPhail said.


The United States Justice Department has opened an inquiry into whether executives at the Royal Dutch/Shell Group violated any laws by failing to disclose soon enough a significant shortfall in reserves of oil and natural gas.


Shares of Shell Transport and Trading, the British arm of Shell, which represents 40 percent of the group, rose 0.63 percent on the news, to 3.58 ($6.53), in London. Royal Dutch Petroleum, which trades in Amsterdam, rose 0.24 percent, to 37.92 euros ($46).


But analysts were also quick to point out that investors were still unsettled by Shell's recent restatements of its oil reserves, a factor that they said was likely to overshadow the Libyan deal in the longer run.


"The market is still factoring a corporate governance discount into the stock,'' Mr. McPhail of ING said. "They still have to prove themselves to the market. Libya is just one small piece of a much larger and complex jigsaw puzzle.''


Analysts also said that Shell's deal was likely to increase pressure on the Bush administration by American oil companies, including Occidental Petroleum and Exxon Mobil, to lift sanctions that continue to bar American companies from investing in Libya.


"Clearly this is going to put a lot of pressure on Bush to get in there and make things happen for the Americans,'' said Mr. Evers of Investec. "It is not every day that an OPEC member comes out and says, 'Come on down.' ''

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