BP sights on Libya's oil and gas

OIL giant BP is in talks with Libya's State-owned National Oil Corporation about investing in massive projects in the energy-rich Arab nation that could be worth billions of pounds.

Discussions are at an early stage but involve a range of huge, integrated projects, including construction of a gas liquefication project, gas pipelines and gas field development in partnership with the NOC.

If the talks are successful it will ratchet up BP's rivalry with Shell, which has a tentative partnership with NOC that could lead to 'integrated upstream and LNG-export projects'.

It would also signal a major strategic investment for BP and its decisive return to one of the world's most attractive hydrocarbon-producing countries. BP left Libya after its operations there were nationalised in the early 1970s, ending nearly two decades of highly successful oil operations.

Officially, BP, headed by Lord Browne, is keeping a 'watching brief' and, as one of the companies entitled to bid for exploration rights in the current licensing round, has a toehold in Tripoli.

However, people familiar with the group's thinking say its interest is more extensive and BP executives were in the capital for meetings with industry officials last week. As a major investor in the Algerian and Egyptian gas businesses, a deal with NOC would consolidate BP's position in North Africa.

The removal of international sanctions against Muammar Gadaffi's regime in September has sparked a scramble by global oil companies for a slice of Libya's vast oil assets.

Although Libya has huge proved reserves, about 75% of.its territory has not been explored for oil and the potential for additions to reserves is massive.

Production is just over 1.6m barrels of oil a day, but NOC hopes to ramp up oil and gas output to three million barrels by the end of the decade. Gas is particularly under-exploited. NOC plans to develop local gas markets as well as expanding exports with new LNG capacity, enabling it to sell increasing volumes to lucrative markets such as the European Union and the US.

In 1960, BP discovered the 10bn-barrel Sarir field - a strike it dreams of repeating. Oil companies are struggling to replace what they produce with new reserves. The problem is especially acute for BP, which pumps four million barrels of oil equivalent a day.

Libya's exploration-permit programme has attracted interest from 122 companies, 63 of which have been given the green light to bid. They include BG, Shell, Exxon-Mobil, ChevronTexaco, Conoco-Phillips and Marathon Oil of the US. Results of the bidding will be revealed on 29 January.