BP’s Eager for a Stable Libya Given Large Exploration Deal
BP (NYSE:BP) is one of the few oil & gas companies with operations in Libya and so the news that this African nation’s civil war is nearing an end is good news for the company. Earlier in February we wrote that the unrest in Libya could jeopardize the $900 million exploration and production agreement BP had signed with Libya’s National Oil Company (NOC) in 2007. The deal was BP’s single biggest exploration commitment at that time and gave BP the rights to explore 21,000 square miles onshore and offshore of Libya. [1] Assuming that a more pro-business and pro-western government will emerge in Libya, BP can expect to benefit as the country stabilizes and tires to get its economy back on track. BP competes with other major oil companies like Exxon Mobil (NYSE:XOM), Chesapeake (NYSE:CHK), Anadarko (NYSE:APC) and Chevron (NYSE:CVX).
We have a price estimate of $55.30 for BP, which is around 40% ahead of the market price.
Libya Has the 9th Largest Proven Oil Reserves
Libya produces about 1.8 million barrels of oil a day and exports more than 85% of its production. Although these figures are small compared to Russia and Saudi Arabia’s production of approximately 10 million barrels a day each, Libya holds an important position in the global oil & gas industry with the largest proven oil reserves in Africa. A member of the Organization of the Petroleum Exporting Countries (OPEC), Libya has proven oil reserves of 47 billion barrels – the 9th largest in the world. [2]
BP Has a Long History in Libya
BP had a significant presence in Libya before 1971 with exploration and production operations in the country. But all of BP’s assets were nationalized by the Libyan government in 1971 [3] and the company’s operations in the country ceased to exist.
The agreement inked in 2007 between BP and NOC marked the re-entry of the oil giant in the North African nation. The importance of this deal has a bizarre history for BP, which admitted to lobbying the British government over the transfer of prisoners with Libya and was successful in speeding up this process to help secure the deal. [4]
Delays in the Past
After the agreement to start oil & gas exploration and production in May 2007, BP was repeatedly delayed in beginning its drilling operations. Slated to begin drilling in early 2010, the project was delayed again due to the Deepwater Horizon oil spill in the Gulf of Mexico. The company was preparing to begin its offshore drilling operations at Libya by June 2011 when the civil war broke out.
BP currently has no expatriate workers there but still has around 100 local employees on the payroll.
BP’s Outlook in Libya Improves
BP does not currently produce any oil or gas in Libya and has no current full-fledged operations in the country. Exploratory drilling operations are the only expenses so far and as a BP spokesperson commented, they are “years away from any production” in Libya. [5]
So while the operations will not impact the BP’s bottom line in the near future, the news that one of its major deals in recent years could be salvaged comes as positive news for the oil major. We don’t expect this to impact oil prices or BP’s outlook in any meaningful way in the near term, but it could help in a few years time assuming it gets exploration activities up and running and oil prices remain elevated as we currently expect.
Notes:- BP Agrees Major Exploration and Production Deal with Libya, BP Press Release, May 29 2007 [↩]
- Libya Facts, CIA, 2011 [↩]
- History of BP, BP, 2011 [↩]
- BP Lobbied Brits Ahead of Lockerbie Bomber Release, AOLNews, July 15 2010 [↩]
- BP suspends gas & oil drilling preparations in Libya, Reuters, 21 Feb 2011 [↩]