Algiers: BP's Libyan gas accord could well be a sign of things to come, with the north African producer cutting more bilateral deals with other majors to gain the latest technology without the effort of a bidding round.

Tuesday's deal will not be the last time Libya taps a multinational to help it lift gas exports or boost oil output capacity, which it wants to raise to three million barrels per day by about 2012 from 1.6 million now, industry watchers say.

The country, a member of the Organisation of Petroleum Exporting Countries (Opec), is eyeing the majors as they have the cash and expertise to handle big integrated ventures, and possibly too because they are perceived to have political clout.

"Once again, this is major proof that there is a more lucrative way into Libya than through increasingly low-margin licencing rounds," said Global Insight consultancy.

"It is becoming increasingly clear that Libya is going to run a two-tier system: a licence framework for small and mid-sized independent oil companies; and bilateral agreements with majors for large-scale projects."

Under the deal signed by National Oil Corp chairman Shokri Ganem and BP chief Tony Hayward, BP will drill 17 exploration wells across 54,000 square kilometres with an initial exploration budget of $900 million.

Feeding frenzy

Like a gas deal Libya signed with Shell in 2005, BP's deal was not the result of a bid round, the fiercely competitive route most international energy firms have had to take to get into Libya following the end of Western sanctions.

Racing to restore output that once topped three million bpd, Libya has held three oil exploration rounds since the end of Western sanctions, awarding permits to US, European and Asian firms in one of the world's last under-explored oil regions.

The so-called EPSA IV rounds sparked a feeding frenzy from foreign firms and ensured that large exploration areas will now be explored by many players dedicated to bringing their blocks into development and production as soon as possible.

But Libya's plans extend well beyond expanding crude output. There are big plans for gas, oil development, refined products, petrochemicals and related export infrastructure.

A fourth bidding round is set for July focusing on gas exploration. It also plans a big $8 billion refinery upgrade and has entered a joint venture with Dow Chemical Co to operate and expand its Ras Lanuf petrochemical complex.

Then there are plans to perk up sagging production at the country's large workhorse fields, now decades old, a challenging but lucrative speciality mastered by Western majors.

The majors argue that putting all these projects together with maximum efficiency requires complex management experience skills that only they have.

Offering integrated projects in a round would be complex, so negotiated deals are a natural solution, experts say.

Nabeel Khodadad, a London-based lawyer for international law firm Chadbourne & Parke, said: "They are quite likely to go to the majors, especially for enhanced oil recovery. That's my expectation.

"Where in the world can you find another country that can double its oil production capacity in five years? And Libya is on Europe's doorstep."


There is no shortage of interest. In recent months alone Libya has been visited by a stream of senior foreign energy officials from Italy, Russia, India, Japan, France and Taiwan.

Rex Tillerson, chairman of America's ExxonMobil, the world's largest publicly listed oil firm, visited Tripoli in February to attend the signing of an energy exploration venture.

Exploration geologist Daniel Clark-Lowes of Nubian Consulting said: "They have had success with the EPSA IV rounds but now I should think they want to make sure they have companies with the cash and the proven expertise."

"There's been a sea change in willingness to see deals through...New deals will be focused on exploration and also on undeveloped oil fields that have significant technical problems to overcome before they can be developed."

Libya still lacks a legal framework for oil enhancement deals - there is no law at present that would permit development in return for granting existing oil output to a foreign firm. Experts say this may eventually be addressed.