Marathon struggles to exit Libya as unrest grows

Reuters

By Lin Noueihed and Julia Payne

LONDON, Oct 25 (Reuters) - Libya has blocked efforts by U.S.company Marathon Oil to sell its stake in one of thecountry's top oil ventures by moving to preempt a deal, sourcessaid, highlighting the struggle investors face in cuttingexposure to Libya's unrest.

Two years of turmoil since the Arab Spring and toughcontract terms have prompted oil firms to reassess their role inLibya, and U.S. companies appear keenest to leave as they lackthe proximity and infrastructure links that make North Africaattractive to their European peers.

Sources told Reuters in July that Marathon was consideringthe sale of its stake in Libya's Waha Oil Company, which has amaximum output capacity of 350,000 barrels per day (bpd) andproduces the OPEC member's main light sweet crude grade.

Oil Minister Abdelbari Arusi later said Libya's National OilCorp (NOC) could buy Marathon's stake though other companies,which he did not name, were also interested.

But a senior Libyan oil source said this week that Marathonhad decided against selling the stake after talks with NOC.

Contracts require foreign oil companies to secure NOCapproval for any sale and also give it the right of firstrefusal in the event of any sale, the source said.

"The company has changed its mind," he told Reuters."Marathon as a partner indicated its desire to sell its shares.It had talks with the NOC and before receiving approval, Ibelieve things changed for the company. The last I heard thedeal was off."

A spokesman for Marathon declined to comment.

"We have not commented on any of the rumours and speculationabout our Libya assets, so we do not have anything to offer atthis time," he said.

Another source close to the matter said the NOC had toldMarathon it would pre-empt any deal with its own bid and thatthe U.S. company should expect the offer to be below marketprices.

"The NOC did not like the idea of Marathon pulling out. Theythought it would send bad signals given the political climate,"the source told Reuters.

CHINESE INTEREST?

Home to some of Africa's largest oil reserves, Libya haspreempted the sale of a foreign company before, highlighting thedetermination of resource-rich countries to maximise theirincome and ensure strategic interests are upheld.

In 2009, Canadian explorer Verenex agreed to be bought outby a Libyan sovereign wealth fund for about $300 million afterLibya blocked a significantly better offer from China NationalPetroleum Corp.

The source close to the matter said there was some Chinese interest in the Marathon stake but that talks had not progressedfar before it became apparent that the NOC would preempt anydeal. The source did not identify the potential Chinese bidder.

The Chinese do not have any major oil investments in Libyaalthough they have become a top buyer of Libyan crude since thefall of Muammar Gaddafi in the 2011 war. Analysts say China iskeen to expand its presence in North Africa's energy sector.

"If Marathon had come with a good buyer, it might have beendifferent," said the source. "There are not piles of buyers."

Industry sources had said Marathon's stake sale would bedifficult because the project required investment, terms weretough and unrest since the 2011 war had brought repeated andprolonged disruptions to production.

A mix of striking workers, militias and political activistshave blocked several of Libya's major oil terminals for aboutthree months, resulting in billions of dollars of lost revenuesfor the government and foreign oil companies operating there.

In the first quarter, production from Libya accounted forabout 7 percent of Marathon's total output.

But Waha has been among the oil operations most heavilyaffected by the blockade of Es Sider, Libya's largest oilterminal, which has been closed since July.

Marathon and ConocoPhillips each hold a 16.3 percentworking interest in the Waha concessions, Hess Corp. holds an 8.2 percent interest and Libya's NOC 59.2 percent.

Marathon's exit would have followed that of ExxonMobil, which said last month the security situation no longerjustified a big presence, and Royal Dutch Shell, whichlast year abandoned two blocks after disappointing results.

But unlike those majors, which were at the explorationstage, Marathon was a stakeholder in an established productioncompany. Analysts said its withdrawal would have sent a morenegative signal as the government struggles to bring productionback up to its 1.5 million bpd capacity.

Production has stabilised at about 600,000 bpd, an NOCofficial said this week, and talks are continuing to endprotests that have seen eastern ports remain shut.

Marathon has sought to sell other assets, including itsstake in an offshore Angolan field, as part of efforts to shoreup its balance sheet and fund other projects.

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