Tickers in this Article: E, RDS, BP, TOT, REP
The recent unrest in Libya has increased the risk to energy companies that have assets and operations in that country. Oil and gas companies based in Europe have more exposure here because American companies were forced to divest operations in the 1980s due to sanctions imposed by the United States government.

IN PICTURES: 5 Tips For Diversifying Your Portfolio

Sanctions
In the early to mid 1980s, President Reagan instituted a series of sanctions on Libya due to that country's support of terrorism. One of these acts required American companies to divest operations in Libya, forcing out many oil and gas operators. In 2004, President Bush lifted the final set of sanctions against Libya, allowing U.S. companies to operate and engage in future exploration and development in that country. (This instrument of foreign policy and economic pressure is preferred over military action but can still pack a punch, see The Power Of Economic Sanctions.)

European Exposure
ENI
(ADR) (NYSE:E) is the largest operator in Libya, and has operations in four onshore and two offshore areas. In 2009, the company reported that its share of production from Libya totaled 244,000 barrels of oil per day, approximately 14% of Libya production. ENI also has the GreenStream Pipeline, which is an underwater pipeline that runs under the Mediterranean Sea and brings natural gas from Libya to Sicily.

Total (NYSE:TOT) has interests in several onshore and offshore blocks and in 2009 reported net production of 60,000 barrels of oil per day from its operations here. The company was planning to expand its operations in Libya before the recent events and conducted a seismic program on two blocks, and also submitted several development plans to the Libyan government.

BP (NYSE:BP) signed an exploration and production agreement with Libya in 2007, and was planning future exploration efforts in that country. The company has now withdrawn its workers from the country. (How a company accounts for its expenses affects how its net income and cash flow numbers are reported, check out Accounting For Differences In Oil And Gas Accounting.)

Royal Dutch Shell (NYSE:RDS) signed an exploration deal in 2005 with Libya, giving the company the right to explore on 22,000 square kilometers. Royal Dutch Shell is also upgrading and possibly expanding the Marsa Al Brega Liquefied Natural Gas facility in Libya. The company's goal is to bring the facility back up to its original capacity and then expand it if exploration and development of natural gas assets are successful.

Repsol (NYSE:REP) has interests in nine separate exploration blocks in Libya, and reported net production of approximately 34,777 barrels of oil per day in 2009. In 2006, the company made a major discovery at the I/R field and started first production here in 2008.

Repsol planned to spend $100 million to develop this one field from 2010 to 2014, and estimates that gross production from here will peak at 75,000 barrels of oil per day by 2014.

In 2009, Repsol also reported a successful offshore well in Sirte Basin. The well was drilled in partnership with the Libyan National Oil Company and the OMV Group, an Austrian oil and gas company that also has operations in that country.

Oil Dependence
There is concern in the marketplace that oil exports from Libya will be interrupted if there is a sudden change of government. This is a legitimate concern but only in the short term as any government that comes to power will need the revenues that oil sales provides. In 2010, 90% of government revenues were from hydrocarbon sales, according to the International Monetary Fund. (Learn more in our Inrtoduction to the IMF.)

European oil and gas companies have the most exposure to Libya and stand to lose the most from an interruption of operations here, as American companies only recently restarted activity after a twenty-year ban was lifted.

comments powered by Disqus

Trading Center