Europe doesn't hit oil companies in Libya as hard as the U.S. does

McClatchy NewspapersMarch 23, 2011 

WASHINGTON — The divide between Europe and the United States over how best to end the regime of Libyan strongman Moammar Gadhafi isn't just about military matters. It also involves oil.

The European Union on Wednesday imposed sanctions against five Libyan oil-sector companies, following a similar action taken a day earlier by the Obama administration. On its face, the move showed common resolve, except that the U.S. Treasury Department actually sanctioned 14 companies, not five.

The EU delayed naming the five companies it will target until the names are published in official EU registers on Thursday. Asked why there were nine fewer companies sanctioned than the U.S. did, Nicolas Kerleroux, chief spokesman for the Council of the European Union, told McClatchy that European sanctions go beyond what the United Nations has so far imposed and cautioned that "one shouldn't exclude further (EU) steps."

For now, however, there's the appearance that the United States went further than Europe in targeting Libyan oil, perhaps giving Euro suppliers a leg up. Concerns about damage to Libyan oil operations have sent the global price of oil soaring, settling at $105.75 a barrel Wednesday on the New York Mercantile Exchange. The AAA Motor Club said that Americans now pay a nationwide average of $3.54 for a gallon of regular unleaded gasoline.

European powers Italy and Spain are large buyers of Libyan oil, and the head of Italy's big oil company Eni has said publicly that operations against Gadhafi harm Italy's national interest. Most major European companies operate in Libya, including Spain's Repsol, France's Total, Germany's Wintershall and Austria's OMV.

Treasury's action Tuesday sought to raise the stakes for any country that might seek to gain from Libya seizing foreign oil operations. Gadhafi has threatened to seize foreign oil concessions if companies don't resume operations.

"I think expropriation was on a lot of companies' minds. There was a concern that if the rebels took over, there would at least be arbitration," said Frank Verrastro, director of energy and national security programs for the Center for Strategic and International Studies, a center-right think tank in Washington, D.C.

The action by Treasury "freezes things," he said, so that even if Gadhafi were able to resume oil exportation, buyers might have to pay back what they purchased from a sanctioned company.

Treasury Department spokeswoman Marti Adams acknowledged that Europe did not go as far as the Obama administration.

"The U.S. continues to encourage the European Union to take additional steps to ensure that all Government of Libya entities are subject to an asset freeze, including entities owned or controlled by the Libya's National Oil Corporation," Adams said. "We believe that this is an important step to achieve our shared objectives to hold the Gadhafi government accountable and to support the aspirations of the Libyan people."

Libya is not a major oil producer, but it has a potentially bright horizon.

"This is the country with the largest oil reserves in the continent of Africa, larger than in ... Nigeria and Angola," said Simon Henderson, an energy security expert for the Washington Institute for Near East Policy, a policy research organization.

The trans-Atlantic disparity in how many Libyan oil companies were targeted is all the more striking given that two of the companies sanctioned by Washington — the Sirte Oil Company and the Waha Oil Company — oversee oil exploration and production concessions granted to U.S. companies.

California-based Occidental Petroleum was the first U.S. company to resume operations in Libya when longstanding sanctions were lifted in 2005. Oxy has oil operations tied to the Sirte Oil Company in the Sirte Basin. Company officials did not return calls seeking comment.

Houston-based Marathon Oil, New York-based Hess Corp. and Houston-based ConocoPhillips are all partners in a large exploration and production concession from the Waha Oil Company. Hess executives would not comment.

Marathon Oil said it was watching developments in Libya with concern.

"Given the continued political and civil unrest in Libya and the imposition of sanctions, Marathon is not currently lifting crude oil from the Waha Concessions, and has ceased making payments to the Libyan government. All Waha Concession operations, including production, are currently suspended," Lee Warren, Marathon's chief spokesperson, said in an email.

Marathon does not have a stake in the Waha Oil Company, rather a concession under contract to it. Marathon's stake is 16.33 percent in the concession.

"The future impacts of the unrest and their duration are unknown," Warren said. "As noted in our recent Form 10-K filed with the U.S. Securities and Exchange Commission, our current property, plant and equipment investment in Libya is approximately $760 million.

ConocoPhillips didn't respond to requests for comment, but its CEO James Mulva told energy analysts in New York this week that the company is stopping short of pulling out of Libya completely.

"He said, 'we're not in a hurry to leave, we've suspended operations,'" said Fadel Gheit, a veteran energy analyst for Oppenheimer & Co. He spoke with Malva and said the CEO told him the energy giant would "let the dust settle" before making any longer term decisions.

Those targeted by Treasury's Office of Foreign Assets are: the Arabian Gulf Oil Company; the Azzawiya Oil Refining Company; the Brega Petroleum Marketing Company; Harouge Oil Operations; Jamahiriya Oil Well Fluids And Equipment; the Mediterranean Oil Services Company; Mediterranean Oil Services GMBH; National Oil Fields and Terminals Catering Company; the North African Geophysical Exploration Company; the National Oil Wells Drilling and Workover Company; the Ras Lanuf Oil And Gas Processing Company; the Sirte Oil Company for Production Manufacturing of Oil and Gas; the Zueitina Oil Company; and the Waha Oil Company.

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