Doubts cloud outlook for Libyan oil bonanza

By Tom Pfeiffer - Analysis

RABAT (Reuters) - Majors oil companies are pouring money into Libya, home to Africa's biggest petroleum reserves, but it is unclear whether the desert country can achieve its goal of almost doubling output within four years.

Tripoli wants to increase output to 3 million barrels of crude oil per day by about 2012 from 1.7 million now, raising extra revenues to help rebuild infrastructure that is crumbling after years of sanctions.

Libya's peak oil output was around 3.3 million bopd in the late 1960s but analysts said that, with output at mature fields declining, it might be hard to push production above 2 million.

Much of the planned increase relies on enhanced oil recovery -- raising output at existing fields -- and the proportion of water to oil being produced at some of those fields is extremely high, a consultant to Libya's oil industry said.

"Fields towards the end of their life are very difficult to handle," said the consultant, who asked not to be named.

"You get unrealistically optimistic claims as to what may be achievable when most engineers know it's just not economically feasible."

Industry consultants remain upbeat, saying there are plenty of oil reserves to be discovered in Libya and some existing fields could double or triple output once firms like Royal Dutch Shell (RDSa.L) and BP (BP.L) roll out new extraction technology.

Oilfields discovered in past decades but not considered economic at the time have become viable prospects thanks to technology improvements and today's high oil prices.

"I believe (3 million bpd) is a realistic target but the question is whether it's a realistic timeframe," said Craig McMahon of Wood MacKenzie.

"Early exploration campaigns have not been particularly successful ... but there's a lot of exploration still to come and we expect some significant discoveries going forward."

Much attention is on BP, which returned to Libya last year after a 30-year break, and has begun exploration work in a large onshore and offshore zone in a high-risk, high-reward operation.

The venture is searching for gas but may also find oil, and is viewed by some as Libya's best hope of a major new discovery.

PROFIT OUTLOOK

Even if Libya reaches its output target, questions remain over whether companies can make big money under the current production sharing conditions.

Three oil and one gas exploration license rounds since sanctions ended raised eyebrows in the industry for the small shares of production awarded to foreign oil companies.