Eni signs new agreement for ventures in Libya

The overall investment associated with the agreed work programs is in the range of $28 billion over 10 years.

Italian energy conglomerate Eni and Libya's National Oil Company, or NOC, signed Tuesday a wide-ranging agreement for future joint ventures in the development of oil and gas operations in the North African country.

The overall investment associated with the agreed work programs is in the range of $28 billion over 10 years.

Eni, which has had a strategic partnership with NOC since 1959, said the agreement "will boost its growth in gas and oil production in Libya, ensuring greater energy security for Italy and enabling Eni to develop some of Libya’s most prolific basins in the long term."

Economic growth in Libya is dependent on the hydrocarbon industry, with companies using enhanced oil recovery (EOR) techniques to increase production at maturing fields. Libya, with largest proven oil reserves in Africa, still remains highly unexplored. Over the next six years, Libya would like to see oil production capacity increase by 40 percent from 1.8 million barrels per day (bbl/d) to 3 million bbl/d by 2013.

NOC has been reported as wanting to raise oil production from 1.80 million bbl/d in 2006 to 2 million bbl/d by 2008 and to 3 million bbl/d by 2010-2013.

"Future foreign investment into the oil sector is likely, especially with the improved investment climate that stems from the United Nations and United States lifting sanctions," according to a Libya Energy Profile report, that notes, "Previously, sanctions had caused delays in a number of field development and EOR projects and had deterred foreign capital investment. Overall, Libya is considered a highly attractive oil province due to its low cost of oil recovery (as low as $1 per barrel at some fields), the high quality of its oil, and its proximity to European markets.

Other foreign operators in Libya - working with NOC - include: Repsol YPF (Spain), OMV (Austria) and Total (France).

Eni said Tuesday's agreement confirms the Italian company as the leading foreign operator in Libya "and further consolidates the good relationship between Italy and Libya."

At various stages in the past century, Libya was a colony of Italy. Specifically, "in 1929 Tripoli and Cyrenaica were united as one colonial province, then in 1934, as Italy struggled to retain colonial power, the classical name "Libya" was revived as the official name of the colony, which was split into four provinces, Tripoli, Misurata, Bengasi, and Derna," according to Wikipedia.

As part of the terms of the agreement, NOC and Eni will convert the existing petroleum contracts to the most recent contractual model (EPSA IV), with a renewed duration of 25 years from January 2008, well beyond the present expiry dates. The new expiry dates set by the agreement are 2042 for production of oil and 2047 for gas.

Having recently completed two major hydrocarbon developments in the country, El Feel (Elephant) and Western Libya Gas Project, Eni and NOC will now define a new plan of strategic initiatives aimed at exploiting the significant oil and gas potential in Libya.

"In October 1997, an international consortium led by British company Lasmo, along with Eni and a group of five South Korean companies, announced that it had discovered large recoverable crude reserves (around 700 million barrels) at the NC-174 Block, 465 miles south of Tripoli. Lasmo, which was purchased by Eni in 2001, estimated that production from the field would cost around $1 per barrel. Elephant began production in February 2004 at around 10,000 bbl/d. In 2006, Eni indicated that Elephant was producing at around 125,000 bbl/d, and the company was hoping to see the field reach full capacity of 150,000 bbl/d by 2008," according to the Libya Energy Profile report.

In particular, the parties will focus their efforts on maximising the recovery of their existing oil fields through enhanced programs by applying the most advanced technology for the assisted recovery of hydrocarbons (Co2 injection and water alternate gas).

They will also implement a new drilling campaign at nearby fields.

NOC and Eni will continue to explore the prolific NC41 offshore area, and strengthen the hub of Mellitah by expanding gas export capacity from 8 to 16 billion cubic meters/year. The expansion will be achieved through the upgrading of the Greenstream export line by 3 billion cubic meters/year, which will increase export capacity to Italy, and by the construction of a new LNG plant of 5 billion cubic meters/year for worldwide marketing. Further additional gas production will be made available for industrial use in Libya.

Eni has a total average daily operated production in excess of 550,000 boepd (Eni equity of around 250,000 boepd) in Libya. Eni is operator in some of the country’s biggest fields: the oil fields of Abu-Attifel, El Feel and Bouri, and the gas and condensate fields of Bahr Essalam and Wafa which supply the Mellitah treatment plant and the Greenstream export line.

Eni's activities in Libya

Eni's production activity in Libya is in the Mediterranean offshore Tripoli and in the Libyan desert area, over a total acreage of approximately 39,569 square kilometres (34,113 square kilometres net to Eni). The main production blocks in which Eni holds interests are: onshore NC169A (Eni’s interest 50%) and offshore NC41 (Eni’s interest 30% for oil and 50% for gas); onshore NC 174 (Eni’s interest 33.3%); and onshore concessions 82 and 100 (Eni’s interest 50%).

Eni also holds a 50% interest in the NC118 block where, after a declaration of commercial discovery, it is developing the A-NC118 field. In the exploration phase, Eni is operator of four onshore blocks in the Muzurk basin (161/1, 161/2&4, 176/3) an in the Kufra area (186/1, 2, 3 & 4). Exploration and production activities in Libya are regulated by concessions and PSAs. Despite production declines at mature fields, Eni’s production in Libya is expected to increase in the medium term owing to the expected ramp up of new structures near the Western Libyan Gas Project fields. This confirms Libya as one of Eni’s largest oil and gas producing countries.

The Wafa and Bahr Essalam fields, containing recoverable reserves of approximately 1.6 bboe were developed as part of the upstream-midstream integrated Western Libyan Gas Project aimed also at exporting natural gas to Europe through the underwater Greenstream pipeline. The gas is supplied to third parties in the Italian natural gas market under long term contracts.

A further 71 bcf of gas will be delivered to the Libyan market once these two fields have achieved their production plateau. Production from these two fields is treated at the Mellitah plant on the Libyan coast, made up of three trains for the treatment of gas from Bahr Essalam, while the gas produced at Wafa is ready for sale. Mellitah also includes facilities for the compression of natural gas that is carried to Sicily, as well as facilities for the storage and loading of oil and LPG. In 2006 a total of 26 offshore producing wells were drilled and linked to the Sabratha platform as foreseen by phase 1 of the project. The Bouri field produces through two platforms linked to an FPSO unit with a storage capacity of approximately 1.5 mmbbl. In 2006 the Bouri East Development project was completed with the start-up of 4 underwater wells.

The Greenstream pipeline

The Greenstream pipeline for the import of Libyan gas has a transit capacity of 8 bcm/y and crosses under the Mediterranean Sea from Mellitah to Gela in Sicily, the point of entry into the Italian natural gas transport system.

The pipeline started operations in October 2004 and in 2006 transported 7.7 bcm of natural gas, of which (i) 6.6 bcm was sold to Italian importers under long-term supply contracts; (ii) 1.1 bcm was supplied from Libyan fields that could not be absorbed by the local market.