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Reuters: Shell agrees gas exploration deal with Libya: “Shell, which is grappling with falling production and dwindling oil and gas reserves, said on Tuesday that the deal was an important step in rebuilding its resource base.” ( 3 May 05


Tue May 3, 2005

By Emma Thomasson and Tom Bergin


AMSTERDAM/LONDON (Reuters) - Oil giant Royal Dutch/Shell Group has agreed a deal with Libya that will allow it to drill for natural gas and develop gas export facilities in the former pariah state.


Shell, which is grappling with falling production and dwindling oil and gas reserves, said on Tuesday that the deal was an important step in rebuilding its resource base.


The deal also shows how Libya's massive hydrocarbon reserves are facilitating its reintegration into the international community, as tight oil supplies send prices to record levels.


Shell has won the right to explore for gas in five blocks in the resource-rich Sirte Basin and to develop an existing liquefied natural gas (LNG) plant on the Libyan Coast with the North African state's National Oil Corp. (NOC).


The parties hope to increase the annual output of the Marsa al-Brega LNG plant to 3.2 million tons from 0.7 million now.


If sufficient gas is found at the five blocks or is secured from third parties, Shell and NOC will later develop a new LNG facility.


Shell replaced less than half the oil and gas it pumped last year with new reserves and the deal cheered investors.


"The jury is still out on their efficiency in finding oil but any good news they can come up with on this front is very welcome," said Richard Lewis, fund manager at New Star Asset Management, whose portfolio includes Shell shares.


Shell did not disclose the terms of the exploration deal, which will be covered by a production-sharing agreement with the Libyan government.


European and Libyan oil industry sources said the winners of an auction for Libyan exploration licenses in January had offered terms that were likely to yield thin profits. The winners were mainly U.S. firms, namely Occidental Petroleum Corp., which won interests in nine of the 15 blocks on offer.




Shell, seen within the industry as the global leader in LNG, plans to begin seismic surveys on the five blocks this year. The firm did not give any estimates for gas in place and it will be some years before any reserves can be booked.


However, the company is optimistic it can find significant amounts of gas, which would be exported to Europe and North America.


"We believe it is a material opportunity that is in line with our big cat exploration strategy," said Matthias Bichsel, Shell's head of exploration.


Shell defines a "big cat" field as one in which Shell's share of the recoverable resources is in excess of 100 million barrels of oil equivalent.


"The explorers are very, very excited about it," Shell's head of gas and power, Linda Cook, added.


The cost of rejuvenating and upgrading the Marsa al-Brega LNG plant will be between $105 million and $450 million, while the exploration agreements commits Shell to a minimum spend of $187 million.


LNG, gas super-cooled to liquid and transported under high pressure, is one of the fastest-growing segments of the energy business, as U.S. and European gas markets deplete their domestic supplies.


Shell's contract follows a preliminary agreement signed in March 2004 in which Shell and NOC agreed to establish a long-term strategic partnership in the Libyan gas sector.


Shell's shares were 0.9 percent higher in London while its shares listed in Amsterdam were up 0.1 percent at 1326 GMT. The DJ European oil and gas index was up 0.7 percent.


Libya's ties with the west have improved dramatically since it announced in December 2003 it would stop pursuing nuclear, chemical and biological weapons. The United States ended a broad trade embargo on Libya in September.;:4277806b:dcea3d9b8de6e7b?type=businessNews&localeKey=en_ZA&storyID=8373102


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