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Interview: Libyan oil output could reach 1.4 million b/d if security holds: Sanalla

Highlights

Libya currently pumping 1.2 million b/d

Sharara field to approach 300,000 b/d in 'next few days'

NOC stepping up upstream efforts

Studying shale oil, gas prospects

Baku — Libya's crude oil production has recovered to 1.2 million b/d but the OPEC producer has the ability to increase output to 1.4 million b/d this year "if the security situation remains stable" the chairman of state-owned National Oil Corporation told S&P Global Platts Tuesday.

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In an interview after attending Monday's OPEC/non-OPEC monitoring committee meeting in Baku, Mustafa Sanalla also said NOC is stepping up efforts to develop upstream activity in the country as it hopes to attract more foreign investment in the coming years.

Since the toppling of former leader Muammar Gaddafi in the 2011 civil war, Libya's beleaguered industry has frequently been at the mercy of groups vying for control of valuable oil assets, with armed attacks on key pipelines and production facilities.

SHARARA PROGRESS

Libyan oil output has recovered sharply over the past few years, with production having jumped to an over five-year high of around 1.2 million b/d late last year.

But security and political challenges continued to impede the sector.

One of the biggest flashpoints has been at the country's largest oil field, Sharara.

Sanalla said production at Sharara should near 300,000 b/d in the next few days, from current levels of 260,000 b/d.

Sharara came online on March 4 for the first time in almost three months, following the removal of an armed group that had occupied the site.

In early-February, General Khalifa Haftar's Libyan National Army captured the field after clashes with forces loyal to the UN-backed Government of National Accord, adding to unrest and tensions in the southwest of the country.

"NOC is still repairing the damage caused by looting and vandalism during the three-month blockade of Sharara, resulting in a capacity reduction of 20,000 b/d. A delay of approved government budget hampers this activity," he added.

Prior to December, the field held a production capacity of around 320,000- 340,000 b/d, according to Platts estimates.

Sanalla said he was hopeful that security at the field will remain stable.

"Guarantees have been given that illegal militia will not be readmitted to site. [NOC] continually assesses security protocols and the safety of site infrastructure," he added.

UPSTREAM PRIORITY

NOC is working on a number of initiatives to reignite Libya's upstream sector. Sanalla said the company is reviewing its upstream portfolio, with a chance of "development and production sharing agreements potentially being announced towards the end of this year."

It is also "extensively" studying unconventional resources, looking at shale oil and shale gas prospects, Sanalla added.

"We have already progressed work in this area," Sanalla said, without giving further details.

NOC's focus will also be on recommissioning all essential oil service companies, drilling and workover contractors in order to restore all existing shut-in wells and rehabilitate surface facilities. NOC has over 400 shut-in wells that require minor and major works.

However, Sanalla remains pragmatic, emphasizing that NOC's target to reach a production capacity of 2.1 million b/d by 2021 hinges on Libya attracting foreign investment along with a big improvement in the security situation.

"Bringing these wells back online and enhancing existing production through infill drilling (vertical, slanted, and horizontal) will significantly add to our production outlook," Sanalla added.

Some international oil companies have begun to express interest in resuming exploration activities in the war-torn country, which contains the largest oil and gas reserves in Africa. But progress is expected to be slow due to the fluid security situation.

Austria's OMV, oil majors Eni and BP, Russia's Gazprom and Tatneft are all expected to gradually resume upstream activity in Libya, according to industry sources.

STORAGE CHALLENGES

Another key restraint for further growth is the lack of storage at the eastern terminals, which represent around two-thirds of total exports.

Sanalla said repair works at some of these sites have already started.

"Some storage tanks are already under repair. NOC has launched the tender process for repair of others," he added. "The restoration of storage capacity is crucial to NOC returning production to pre-revolution levels -- but this will require significant budget and investment."

A number of crude storage tanks at Ras Lanuf and Es Sider have been destroyed due to fighting between various rival groups and also attacks by Islamic State over the past two years.

After the damage sustained in June last year, sources say exports from Ras Lanuf have recently fallen to around 30,000 b/d from 125,000 b/d in January to May this year, Platts estimates showed.

-- Eklavya Gupte, eklavya.gupte@spglobal.com

-- Herman Wang, herman.wang@spglobal.com

-- Rosemary Griffin, rosemary.griffin@spglobal.com

-- Edited by James Leech, newsdesk@spglobal.com