Energy consortium sizing up exploration possibilities in Libya

Houston Business Journal by Monica Perin, Houston Business Journal

Three Houston energy companies have signed on with a locally based consortium that is pursuing oil exploration in Libya.

The oil-rich North African nation has been off-limits to U.S. companies for nearly two decades because the U.S. government banned any commercial activity with the country’s rogue/terrorist leader Moammar Qadaffi.

Libyan agents were determined to have been responsible for the downing of an American airliner over Scotland in 1988, killing more than 200 people.

All that is rapidly changing now as Qadaffi seems to be turning over a new leaf. Late last year, he reached a monetary settlement with the families of the Pan Am disaster. And earlier this year, he agreed to stop developing nuclear weapons and to allow international inspection teams into his country.

These developments opened the path for the Bush Administration to finally lift the ban on commercial activity in Libya by U.S. companies, which have watched in frustration while European and Asian companies — subject to no legal restrictions or simply ignoring them — have moved into Libya.

Among the 15 members of the Libya Study Group consortium are:

  • Houston American Energy Corp., a small independent oil and gas exploration and production company with operations in Texas, Louisiana and Colombia. The company is also part of a consortium in Colombia.
  • Spinnaker Exploration Co., a small independent oil and gas exploration company that until now has operated exclusively in the Gulf of Mexico. This will be the company’s first international foray.
  • El Paso International, the scaled-down oil and gas E&P division of El Paso Corp., which has sold off a lot of its assets in North America, Europe and Asia to pay off debt and still had to lop $2.7 billion off the reported value of its oil and gas properties earlier this summer.

Other members, each which put up an initial $5,000 to join the group, include companies in Canada, Australia and Tunisia, according to William Divine, chairman of Houston-based Concessions International and organizer of the Libya group.

Divine, who describes himself as a “seasoned upstream expert,” has formed a joint venture with Houston-based Roxanna Associates, a team of oil exploration professionals formed by Marlan Downey, a former executive with Shell and Arco.

The Libya Study Group is a prototype for other consortia that Divine intends to create to promote exploration in parts of the world that have a lot of undeveloped discovered reserves of oil and gas but present economic and other costs that are virtually insurmountable for small independent companies.

“What we do is to facilitate bringing in small companies to places like Libya and offshore West Africa where there are reserves too small for big companies to bother with but there is no way for small companies to get in,” says Divine. “That’s why so many discoveries are undeveloped.”

Divine estimates there are more than 6,000 undeveloped oil and gas discoveries worldwide.

In Libya, the consortium is sharing the cost of the first phase of study, which is to identify all upstream opportunities, including those being publicly offered by the government but particularly ones that are not being offered and may not be generally known, according to Divine.

John Terwilliger, chairman of Houston American Energy, says Libya is putting 15 areas up for bid in January and has opened a data room in Tripoli on those properties, “but we (the study group) have 135 areas of our own we’re looking at where productive wells have been drilled and tested or produced. We think there is more opportunity there than in the high-profile areas the government has put out.”

The advantage for Houston American, Terwillger says, is that the company is not responsible for bearing all the costs.

“There is a lot of data to amass and a lot of work that has to be done,” he says. “This is a short cut for companies to move forward without having to internally generate all of this. You would have to have people on your staff with expertise in these areas to acquire the necessary information, and there would be a long lead time to do that.”

Terwilliger says his company ultimately will take non-operating positions on the projects and piggyback off the larger operating companies.

“We want to branch out internationally, and Libya is very attractive to us,” he says.

Libya, Terwilliger points out, is estimated to have some 36 billion barrels of oil reserves and more than 50 trillion cubic feet of natural gas, yet only 25 percent of the surface area has been explored.

Divine says the initial phase of researching legal and operational issues and doing a preliminary survey of geological and geophysical field economics data is already under way. This information will be presented to the consortium companies on Sept. 30. They will then have until Oct. 15 to notify the joint venture as to which projects they want to participate in.

The team will then do feasibility and data acquisition, which Divine says will take a couple of months. When those findings are presented, member companies will once again be asked to opt in or opt out.

The consortium expects to be bidding on projects by January.

Divine says he is already talking to other consulting companies about forming joint ventures to implement this model in other parts of the world.

mperin@bizjournals.com • 713-960-5910

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