OSLO (Reuters) - Wintershall, the second-largest foreign oil firm in Libya before the civil war, has boosted output in the country to three times what it was in the fall, but ageing pipeline infrastructure is limiting its production capacity, its CEO told Reuters.
The company, the oil and gas unit of German chemicals group BASF, used to produce some 100,000 barrels per day (bpd) before Libyan leader Muammar Gaddafi was removed from power last year.
With more than $2 billion invested in the country and 150 wells sunk in Libya, the company was second only to Italy’s Eni among foreign firms before the conflict. Libya accounted for almost three quarters of its oil output.
“We started with a production of 20,000 bpd in October and we have now stabilised to an average of 60,000 bpd,” Chief Executive Rainer Seele said in an interview on the sidelines of an energy conference.
Wintershall could produce 90,000 bpd from its fields but Libya’s old pipeline system is preventing the company from transporting the crude from the desert to the coast in the quantities it would want to.
“We are now discussing with (Libya’s) national oil company a long-term solution because the pipeline is more than 50 years ‘young’ and we definitely have to see whether we can find a solution there,” said Seele.
Conditions to do business in Libya had improved since October, he added. Back then, the international financial sanctions imposed during the war and the country’s financial collapse were problematic, he told Reuters previously.
“It is now back to normal. We have no problems with financial transactions and sanctions are lifted.”
Exploring further for oil in Libya was on hold for Wintershall, Seele explained, as it would depend on what kind of economic conditions foreign oil companies would work under once stable political institutions are restored. That remained uncertain at the moment, he said.
“It is a question of what framework we are going to have. We are waiting for a long-term sustainable situation in the country. How long it would take, I don’t know.”
The chief executive no longer saw safety was as a worry. “Safety of operations is absolutely there. This is not a concern.”
Wintershall is becoming one of the most active companies exploring for oil and gas off the coast of Norway, the world’s eighth-largest oil exporter, partly as a way to become less dependent on Libya.
The German company aims to produce 50,000 bpd by 2015 off the Norwegian coast and in the northern part of the British North Sea, compared with 4,000 bpd in 2010.
The firm is currently drilling an appraisal well at its Maria discovery to define further the size of its reserves, currently estimated at between 60 and 120 million barrels. Production there is expected to start in 2016.
Wintershall will also drill three exploration wells this year off Norway, called Skarfjell, Kakelborg and Asha/Noor.
Wintershall, Germany’s biggest gas producer, sees slugglish growth in European gas demand in the mid-to-long term.
“We are not counting on big growth rates in gas demand on the European market - 0.5 to 1 percent per year,” he said.
Seele expected more customers in general to ask for gas contracts to be based on spot prices, rather than being indexed on oil prices, which are currently higher than gas prices.
European utilities have put pressure on energy companies to switch away from traditional oil-indexed contracts, as the correlation between oil and gas prices has weakened over the last decade.