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Tickers in this Article: BP, XOM, COP, MRO, APC
Libya audacious plan to boost its oil capacity by two thirds over the next four years would help meet the future needs of energy hungry consumers. Is the plan feasible or wishful thinking by a country desperately fighting against its decline rate?
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The plan announced last week would boost oil production capacity from the current 1.8 million barrels per day to 3 million barrels per day by 2013. The country is currently producing under capacity due to the fall in worldwide demand for oil, and produced 1.53 million barrels per day in August 2009. The country will invest $9.86 billion over the next four years to increase capacity to this level.

There is no doubt that the oil is out there. In August, 2009, a government owned oil company hit pay on an onshore well that produced at nearly 4,000 barrels per day. Libya also has 44 billion barrels of reserves according to the latest analysis, with 80% of the reserves located in the Sirte Basin.

Many Western companies already produce oil in Libya. Conoco Phillips (NYSE:COP), Marathon Oil (NYSE:MRO) and Amerada Hess (NYSE:AHC) own 41% of the Waha Oil Company, a Libyan based company that has interests in four oil fields in the country. The balance is owned by the National Oil Company (NOC), which is the government owned oil company in Libya.

Exxon Mobil (NYSE:XOM) left the country in 1986 after sanctions were imposed on Libya, but has recently started exploring again. The company just started drilling one of three deepwater wells off the coast of Libya.

BP, Inc. (NYSE:BP) signed an accord with Libya in May 2007, allowing the company to conduct an exploration and appraisal of onshore and offshore assets. The appraisal will include a seismic survey of the area. BP is committed to spending $900 million on this phase. BP will drill its first appraisal well by the end of 2010.

Although it may be an unscientific method of analyzing the situation, one can conclude that Libya is under producing relative to its reserve base. Nigeria has oil reserves of 36.2 billion barrels of reserves, yet has the capacity to produce 2.7 million barrels of oil per day.

It does seem plausible that Libya could meet its goal of 3 million barrels per day of capacity buy probably not by 2013, as the long lead time required to build offshore infrastructure may take longer than anticipated.

The Libya plan to boost capacity may be doable, as the country has been under invested in for many years due to international sanctions and the absence of the major oil companies. (For a primer on the oil industry, refer to our Oil and Gas Industry Primer.)

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