Libya's Oil Boom Is Running Dry

The release of the Lockerbie bomber triggered speculation that British energy companies trying to access Libya’s oil wealth could soon hit a bonanza. But in reality, Big Oil is already there, and its interest in Libya is cooling.

The initial enthusiasm that accompanied Libya’s first rounds of oil licensing — held soon after international sanctions were lifted in 2004 — has worn off, a casualty of arbitrary laws, Draconian contractual terms and Byzantine bureaucracy.
Since last week, when the Scottish government released Abdel Baset al-Megrahi, the Libyan convicted eight years ago in the 1988 bombing of Pan Am Flight 103 over Lockerbie, Scotland, there has been speculation that it was part of a political deal between London and Tripoli: In exchange for Mr. al-Megrahi’s release, Libya might make life easier for British companies, such as BP PLC and Royal Dutch Shell PLC, that want to do business in Libya. That theory is vehemently denied by both British and Scottish officials.

And industry officials say they doubt the Scottish move could ease the massive bureaucratic obstacles British companies have faced in Libya.

“That might prove illusory,” said Mehdi Haroun, a partner at legal firm Herbert Smith LLP in Paris who advises oil firms working in North Africa. Even if Col. Moammar Gadhafi’s government becomes more favorably disposed toward foreign companies, “you still have to face the inertia of the administration,” he said.

Libya has the largest proven oil reserves of any African country, with 43.7 billion barrels, according to BP. Oil companies have piled in since sanctions were lifted, attracted by some of the world’s most promising unexplored oil and gas acreage and its proximity to the huge European energy market.

But Libya has proved a difficult country to operate in. Oil companies often have to pay heavy customs duties on imported equipment, despite the exemptions written into their contracts. Onerous labor laws require them to hire Libyan nationals even when they lack the appropriate skills. Signing a simple rental agreement for an office can be hard, because of the chaos of competing ownership claims.

Wall Street Journal (through Google News)