British energy major BP Plc (BP) plans to resume its Libyan exploration operations, which were stalled last February due to civil unrest. The restart of operations, however, depends on security conditions.
BP has withdrawn the Force Majeure relating to its Libyan Exploration and Production Sharing Agreement (:EPSA), which was signed with the state-owned National Oil Corporation. The deal came into effect on May 15, 2012. Force Majeure exempts both parties from any obligation to accomplish commitments like drilling due to an occurrence outside one’s control.
At the time when BP plans to resume operations in Libya, its rival Royal Dutch Shell (RDS.A) is exiting operations at two blocks in the region.
The improving economic and political situation has encouraged several companies to return to Libya. However, Shell’s exit is due to poor results of an extensive seismic and drilling campaign in its licenses where further exploration is not economically feasible.
Currently, BP has no production in Libya. Since the company’s EPSA deal was sanctioned in December 2007, BP has purchased over 31,000 square kilometers of 3D seismic offshore in the Sirt basin and onshore in the Ghadames basin. Per the contract, BP is responsible for the drilling of five offshore and 12 onshore wells.
Per the OPEC oil cartel, Libya holds oil estimated at 47 billion barrels, which is world’s ninth largest reserve. Other major companies like – Eni SpA (E) and Total SA (TOT) have also commenced operations in the region.
However, in recent times, foreign companies have been reluctant to continue operations in the north African country due to tough contracts and constant insecurity. The repeated attack on oil officials also discourages companies from setting up operations in the region.
BP holds a Zacks #3 Rank, which is equivalent to a Hold rating for a period of one to three months. Longer term, we maintain our Neutral recommendation on the stock.
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