Business News : BP to resume operations in Libya

ALGIERS (Business News) - BP (BP.L) is to resume exploration activities in Libya that it suspended because of last year's uprising, re-starting a relationship which under ousted Libyan leader Muammar Gaddafi landed the firm in the centre of a political storm.

BP's return is a milestone in the recovery of Libya's energy sector, though this was tempered by an announcement from Royal Dutch Shell (RDSa.L) that it would pull out of fields in Libya on the grounds that they were not worth developing.

BP closed down operations in Libya and withdrew its expatriate workers in February last year, days after protests broke out in eastern Libya which with help from NATO warplanes and missiles eventually forced Gaddafi from power.

The oil firm follows other majors, including Eni (ENI.MI) and Total (TOTF.PA) in restarting Libya operations, despite lingering worries about security and the possibility the new authorities will try to re-negotiate contracts signed under Gaddafi.

The head of Libya's Nationa l Oil Corporation, Nuri Berruien, and Michael Daly, BP's executive president for exploration, agreed in Tripoli on Tuesday to lift force majeure, the legal mechanism under which BP suspended its operations last year.

The agreement was a "significant milestone in BP's plans to return to the exploration of onshore and offshore blocks," Daly said in a statement.

BP's then chief executive Tony Hayward travelled to Tripoli in 2007 to sign a $ 900 million contract giving the company the right to explore onshore and offshore fields in Libya, home of Africa's largest proven crude reserves.

But the deal quickly became entwined in a furious political row about Abdel Basset al-Megrahi, the Libyan convicted of the 1988 bombing of a U.S. airliner over the Scottish town of Lockerbie.

Megrahi died in Tripoli earlier this month, three years aft er Scottish authorities released him on the grounds he was terminally ill and did not have long to live. He had returned to a hero's welcome in Tripoli.

Megrahi's release caused a storm of anger in the United States, where many of the victims of the Lockerbie bombing were from. The U.S. Senate Foreign Relations Committee launched an inquiry into whether there was any connection between Megrahi's release and BP winning the exploration deal in Libya.

The company and the British government have always denied any connection between the two, although BP did say it lobbied for Megrahi's transfer to Libya.

SECURITY SITUATION 'MANAGEABLE'

Libya now is preparing for its first ever democratic elections, but the new government is weak and struggling to keep in check armed volunteer militias.

A BP spo kesman said security was going to be "the determining factor on how quickly we move."

"At the moment we feel security and safety is sufficiently manageable."

It was likely to be months before BP had everything in place to re-start its exploration work, the spokesman said.

"The first thing we need to do is re-establish the contracts for drilling and logistics," he said.

"We need to get contractors back in for the onshore and offshore drilling .. Then it's back to work as soon as possible."

Shell said its decision to pull out of its Libyan contracts did not show any lack of faith in the oil sector, and said it would keep an office open in Libya to look into new deals.

In a statement, the company said it would abandon drilled wells and stop exploration on it s two Libyan licenses. It said its departure had nothing to do with security issues and was taken on a purely commercial basis.

"Despite an extensive seismic and drilling campaign in these licenses, results have been disappointing and further exploration cannot be economically justified," a Shell spokesman said. "We have agreed to actively pursue new upstream business opportunities."

Asked about Shell's decision, NOC chief Berruien told Business News by telephone: "All I can say right now is that Shell is not withdrawing from Libya. They are staying."