BP (BP) is one of the world's leading oil and gas companies with operations in more than 80 countries. It provides customers with fuel for transportation, energy for heat and light, retail services and petrochemicals products for everyday items. It competes with other major oil companies like ExxonMobil (XOM), Chesapeake (CHK), Anadarko (APC) and Chevron (CVX).
The political turmoil in Libya must be chilling for BP as it could bring into limbo the future of the $900 million exploration and production agreement BP had signed with the Libya's National Oil Company in 2007. The deal was BP's single biggest exploration commitment at that time and gave BP the rights to explore 21,000 square miles onshore and offshore of Libya.
Libya as a Major Oil and Gas Producing Nation
Libya produces about 1.8 million barrels of oil a day, and exports more than 85% of its production. Although these figures are small compared to Russia and Saudi Arabia's production of approximately 10 million barrels a day each, Libya holds an important position in the global oil & gas industry with the largest proven oil reserves in Africa. A member of the Organization of the Petroleum Exporting Countries, Libya has proven oil reserves of 47 billion barrels -- the 9th largest in the world.
BP Had Its Share of Problems with Libya in the Past ...
BP had a significant presence in Libya before 1971, with exploration and production operations in the country. But all of BP's assets were nationalized by the Libyan government in 1971, and the company's operations in the country ceased to exist.
The agreement inked in 2007 between BP and NOC marked the re-entry of the oil giant in the North African nation. The importance of the agreement for BP can be understood by the fact that the company admitted to lobbying the British government over the transfer of prisoners with Libya and was successful in speeding up this process to help secure this deal.
... And the Woes Don't Look Like They Will End Soon
After the agreement to start oil & gas exploration and production in May 2007, BP was repeatedly delayed in beginning its drilling operations. Slated to begin drilling in early 2010, the project was delayed again due to the Deepwater Horizon oil spill in the Gulf of Mexico. Just days ago, the company announced that it was preparing to begin its offshore drilling operations at Libya by June 2011. Its onshore rig was also set to begin operations in a couple of weeks.
With violence increasing on the streets of Libya, BP has decided to evacuate its staff from the country. BP has about 140 staff in Libya, with most of them being local employees. There are around 40 expats -- both employees on BP payroll and contractors -- and their families which are being flown out of the country.
So What Exactly Will This Mean to BP?
BP does not currently produce any oil or gas in Libya. It also does not have any full-fledged operations in the country, with their exploratory drilling operations being the only expenses for them until now. As a BP spokesperson commented, they are "years away from any production" in Libya.
But the political unrest in the country makes the future of the country's investment in production operations in Libya bleak. With delays adding to costs for the company, and at the same time further pushing back revenues that can be generated from production and sales, it will have an impact on BP's value in the long run.
In the short run, however, BP does stand to gain from the unrest in Libya. This is because the situation has triggered an increase in the price of crude oil around the world. The price of the Brent crude, used as a reference for global oil prices, today crossed $105. This is the highest it has been in more than 30 months.
If oil prices remain at the levels they are at currently for a considerable amount of time, this would increase BPs revenues for the year. Although the prices would settle down in the long run, the impact would add significant value to the BP stock at the end of this quarter.
Like our charts? Embed them in your own posts using the Trefis Wordpress Plugin.