Top 5 oil producers:Iran and these four countries are the worlds biggest… (/ )
It struck some visitors to the Houston office of ConocoPhillips chief executive Jim Mulva as peculiar that he displayed a photograph of himself and Libyan leader Moammar Gaddafi.
They were an odd couple: a veteran of corporate politics at a U.S. oil company and the colonel who had survived four decades of confrontation with the West while maintaining repressive rule over his North African nation.
But the relationship between Gaddafi and the U.S. oil industry as a whole was odd. In 2004, President George W. Bush unexpectedly lifted economic sanctions on Libya in return for its renunciation of nuclear weapons and terrorism. There was a burst of optimism among American oil executives eager to return to the Libyan oil fields they had been forced to abandon two decades earlier. Gaddafi, who had been sanctioned for Libya’s role in the downing of Pan Am Flight 103 over Lockerbie, Scotland, also looked forward to U.S. help in reviving his flagging oil production.
Yet even before armed conflict drove the U.S. companies out of Libya this year, their relations with Gaddafi had soured. The Libyan leader demanded tough contract terms. He sought big bonus payments up front. Moreover, upset that he was not getting more U.S. government respect and recognition for his earlier concessions, he pressured the oil companies to influence U.S. policies.
In late February 2008, Mulva was “summoned to Sirte for a half-hour ‘browbeating’ ” from Gaddafi, according to a U.S. State Department cable made available by WikiLeaks. Gaddafi “threatened to dramatically reduce Libya’s oil production and/or expel . . . U.S. oil and gas companies,” the cable said.
Now, this troubled marriage and the promise of billions of barrels of oil have been dashed by the fighting and Gaddafi’s refusal to relinquish power. Much is at stake; oil industry executives say companies such as ConocoPhillips and Marathon have each invested about $700 million over the past six years. But the U.S. oil companies have been pushed to the sidelines, waiting for the conflict to end.
In 2004, oil giants and Libya had hopes for a new relationship — and new discoveries.
U.S. companies had historically played a major role in Libya’s oil development. The Oasis Group — a consortium of ConocoPhillips, Marathon Oil and Hess — and Occidental Petroleum were particularly prominent. Exxon, Chevron and Italy’s state-run Eni were also major players.
They had weathered the 1969 coup when Gaddafi seized power. In 1970, when Gaddafi had threatened to nationalize oil operations, Occidental Chairman Armand Hammer flew to Tripoli for face-to-face negotiations. Each night, he flew back to Paris, where he felt safer. At one meeting, the deputy prime minister put his .45 revolver down on the table. The result: Libya extracted higher prices and a boost in royalties.
That was the beginning of a decade that tilted the balance of power away from oil companies toward oil-exporting countries. Yet it was U.S. government policy in 1986 that finally severed the companies’ relations after Libyan agents, in retaliation for a U.S. bombing raid on Tripoli that President Ronald Reagan ordered, set bombs that brought down the Pan Am flight, killing 270 people.
2004 deal with U.S.
When Gaddafi made his deal with Bush in 2004, he had hoped that returning foreign oil companies would help boost Libya’s output, which had dipped below 2 million barrels a day after reaching 3 million in the early 1970s.
Moreover, he saw foreign-policy benefits. “Gaddafi has always felt that he was not safe from the United States and that if he has more business, more trade, then things would change,” said Ali S. Aujali, a former Libyan ambassador to the United States.
The U.S. government also encouraged American oil companies to go back to Libya. “Back when the sanctions were first lifted,” said David Goldwyn, until recently head of international energy affairs at the State Department, “there was from the Bush administration’s point of view this promise of economic activity in return for renouncing weapons of mass destruction and terrorism.”
The companies needed little encouragement. Libya has some of the biggest and most proven oil reserves — 43.6 billion barrels — outside Saudi Arabia, and some of the best drilling prospects. Its older fields, which suffered during U.S. sanctions, could benefit from enhanced recovery techniques and be the source of vast new production.
“Oil companies were extremely excited to move into a territory that had been neglected for 20 years,” said Geoff D. Porter, a political risk and security consultant specializing in North Africa and the Sahara. He said experts believed that only 30 percent of Libya had been explored and that there was “much more oil to be discovered.”
But negotiations were tough, and some companies paid lavishly for the chance to get back in.
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