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Marathon struggles to exit Libya as unrest grows

Lin Noueihed and Julia Payne
Friday, 25 Oct 2013 | 10:27 AM ET

LONDON, Oct 25 (Reuters) - Libya has blocked efforts by U.S. company Marathon Oil to sell its stake in one of the country's top oil ventures by moving to preempt a deal, sources said, highlighting the struggle investors face in cutting exposure to Libya's unrest.

Two years of turmoil since the Arab Spring and tough contract terms have prompted oil firms to reassess their role in Libya, and U.S. companies appear keenest to leave as they lack the proximity and infrastructure links that make North Africa attractive to their European peers.

Sources told Reuters in July that Marathon was considering the sale of its stake in Libya's Waha Oil Company, which has a maximum output capacity of 350,000 barrels per day (bpd) and produces the OPEC member's main light sweet crude grade.

Oil Minister Abdelbari Arusi later said Libya's National Oil Corp (NOC) could buy Marathon's stake though other companies, which he did not name, were also interested.

But a senior Libyan oil source said this week that Marathon had decided against selling the stake after talks with NOC.

Contracts require foreign oil companies to secure NOC approval for any sale and also give it the right of first refusal in the event of any sale, the source said.

"The company has changed its mind," he told Reuters. "Marathon as a partner indicated its desire to sell its shares. It had talks with the NOC and before receiving approval, I believe things changed for the company. The last I heard the deal was off."

A spokesman for Marathon declined to comment.

"We have not commented on any of the rumours and speculation about our Libya assets, so we do not have anything to offer at this time," he said.

Another source close to the matter said the NOC had told Marathon it would pre-empt any deal with its own bid and that the U.S. company should expect the offer to be below market prices.

"The NOC did not like the idea of Marathon pulling out. They thought it would send bad signals given the political climate," the source told Reuters.

CHINESE INTEREST?

Home to some of Africa's largest oil reserves, Libya has preempted the sale of a foreign company before, highlighting the determination of resource-rich countries to maximise their income and ensure strategic interests are upheld.

In 2009, Canadian explorer Verenex agreed to be bought out by a Libyan sovereign wealth fund for about $300 million after Libya blocked a significantly better offer from China National Petroleum Corp.

The source close to the matter said there was some Chinese interest in the Marathon stake but that talks had not progressed far before it became apparent that the NOC would preempt any deal. The source did not identify the potential Chinese bidder.

The Chinese do not have any major oil investments in Libya although they have become a top buyer of Libyan crude since the fall of Muammar Gaddafi in the 2011 war. Analysts say China is keen to expand its presence in North Africa's energy sector.

"If Marathon had come with a good buyer, it might have been different," said the source. "There are not piles of buyers."

Industry sources had said Marathon's stake sale would be difficult because the project required investment, terms were tough and unrest since the 2011 war had brought repeated and prolonged disruptions to production.

A mix of striking workers, militias and political activists have blocked several of Libya's major oil terminals for about three months, resulting in billions of dollars of lost revenues for the government and foreign oil companies operating there.

In the first quarter, production from Libya accounted for about 7 percent of Marathon's total output.

But Waha has been among the oil operations most heavily affected by the blockade of Es Sider, Libya's largest oil terminal, which has been closed since July.

Marathon and ConocoPhillips each hold a 16.3 percent working interest in the Waha concessions, Hess Corp. holds an 8.2 percent interest and Libya's NOC 59.2 percent.

Marathon's exit would have followed that of ExxonMobil , which said last month the security situation no longer justified a big presence, and Royal Dutch Shell, which last year abandoned two blocks after disappointing results.

But unlike those majors, which were at the exploration stage, Marathon was a stakeholder in an established production company. Analysts said its withdrawal would have sent a more negative signal as the government struggles to bring production back up to its 1.5 million bpd capacity.

Production has stabilised at about 600,000 bpd, an NOC official said this week, and talks are continuing to end protests that have seen eastern ports remain shut.

Marathon has sought to sell other assets, including its stake in an offshore Angolan field, as part of efforts to shore up its balance sheet and fund other projects.

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