Oil giant Royal Dutch/Shell seized on warmer ties between Libya and the West yesterday to sign an industry partnership with the oil-rich country 20 years after the company stopped work there.

Libyan officials and the Anglo-Dutch group, whose move puts Libya back on the radar for the world's top oil firms, said it was too early to talk about specific deals.

But officials accompanying British Prime Minister Tony Blair on a landmark visit to Tripoli said Shell was on the verge of a $200-million natural gas project there.

Britain is building bridges with Libya after the West's old foe, Libyan leader Muammar Gaddafi. As Blair shook hands with Gaddafi, Libya's foreign minister told reporters he would try to open up exploration and re-build neglected facilities.

Mohammed Abderrhmane Chalgam said he had over 180 contracts to hand out and that the bidding process would be open. "We want to rehabilitate our oilfields and upgrade the facilities," he said. "Shell is very important but it is open to competition." He said Tripoli had also been talking to potential partners in the United States, including the president of Occidental, which recently opened up an office in Tripoli. A group of other US firms called Oasis is also keen to renew contracts on Libyan acreage, dormant since US sanctions isolated the nation in the 1980s. These are set to expire next year.

Shell's statement gave no financial details and said it would "continue negotiations on specific projects in Libya in the course of 2004". A spokesman said the company was mainly looking at onshore exploration and LNG projects.

Shell's move puts Libya on the map for the first time in the 21st century with one of the world's top three oil firms, even though up until the late 1960s Libya produced a quarter of all the crude oil consumed in Europe.

But smaller European groups including Italy's ENI have a head start on their Anglo-Saxon rivals.

At the same time, Libya's foreign minister, Abdel-Rahman Shalqam, said Libya will seek an increase in its Opec production quota for oil as it intensifies activity at its oil fields with help from foreign investors.

"We are completely open now. We have a new policy, especially regarding the sector of oil," he said.

"We want to upgrade our quota in Opec even, due to our reserves." Libya's quota with the Organisation of Petroleum Exporting Countries is 1.2 million barrels per day, though it is producing well above that. Libya pumped an average of 1.48 million barrels a day in February, according to the Paris-based IAE.

Its proven reserves of oil are estimated at a modest 30 billion barrels, compared with 113 billion barrels in Iraq, but some analysts indicate that its actual reserves could be much larger. Shalqam did not specify a size for the quota Libya would like, nor did he provide a timeline for increasing its production.

The Royal Dutch/Shell agreement was signed in Tripoli by Abdalla S. el Badri, chairman of the management committee of Libya's National Oil Corporation, and Malcolm Brinded, chief executive officer of Shell exploration and production.

The agreement entails a preliminary understanding of key principles for London-based Shell to participate in the production of Libyan gas. It includes onshore exploration and the development of liquefied natural gas facilities, Shell said.

If the results are successful, Shell foresees a multibillion dollar programme to produce gas and build facilities for exporting liquefied natural gas, or LNG, to North America, Brinded said.

Shell and the state-run Libyan company are to negotiate details of the deal in coming weeks and months. Assuming the two sides reach a final agreement, Libya would become one of Shell's largest international exploration programmes, Brinded said.

FACTBOX

Major active companies

• In November, Australia's Woodside <WPL.AX>, Repsol and Hellenic Petroleum <HEPr.AT> of Greece signed a 30-year exploration and production sharing agreement with Libya's National Oil Company, worth more than $100 million in total spending.

• In May 2003, Repsol and OMV won an oil and gas exploration permit worth a further $90 million, to be shared 60/40 between the Spanish and Austrian firms.
Germany's RWE-Dea also signed an exploration deal last year, to invest $56 million over a five-year period.

• Italy's ENI (Agip) is Libya's largest producer, with about 14 per cent of output. ENI is lead operator of the Elephant field, which saw first oil in February and is expected to reach 150,000 bpd by 2006. It also operates $7.8 billion Wafa project, which is expected to begin production in 2004.

• Repsol operates the El-Sharara field at 170,000 bpd and the NC-186 field A with 40,000 bpd. Its 30,000 bpd NC-186 field D is ready to start in 2004.

• OMV is partner in El-Sharara and NC-186, also has exploration in NC-187 and NC-190 and small operations in the Sirte and Ghadames basins, plus Zueitina operations.

• France's Total is partner in El-Sharara and NC-186, started the offshore Al Jurf field in Block 137 in September at 40,000 bpd and also has an interest in the Mabruk field.

• Petro-Canada bought a 25 percent interest in En Naga block from Sweden's Lundin Oil and has small interests in more than 20 other Libyan fields.

US companies with assets in Libya

• Several US companies still hold assets frozen in Libya since 1986. Last month the Bush administration said it would let US firms to begin negotiating their return, and ended some travel restrictions.

• The so-called Oasis Group — Conoco, Amerada Hess and Marathon Oil produced 850,000 bpd in 1986 and are expected to lead the U.S. return to Libya.

• In addition Occidental Petroleum has assets frozen that produced 170,000 bpd in 1986. Last week Occidental chairman Ray Irani became the first senior US oil executive to visit Tripoli in years. He said the firm planned to reopen an office as soon as possible.

Source: US Department of Energy, oil companies, Libyan officials, analysts.