With US Executive Orders on Iran and Libya still firmly in place, oil industry executives and observers are pondering the possible responses of the US Government to the acquisition by Amerada Hess of the UK’s Lasmo Oil – an acquisition which delivers interests in both Iran and Libya to the US firm.
Indeed, with the US Treasury’s Office of Foreign Asset Control (OFAC) openly warning US oil companies not to bid on projects or even sponsor conferences concerning Iranian oil or gas projects (See page A19), there is surprise throughout the industry that Hess – “normally so correct in these things,” as one observer put it – would even consider the purchase of Lasmo, much less undertake it.
Hess Chairman and Chief Executive John Hess last week expressed the hope that the US Government might allow his company to continue Lasmo’s activities in both countries through a London-based subsidiary operating independently of Hess management, but he was prepared to accede to US Government objections if necessary.
“If we couldn’t hold on to either, it would have no important impact on the deal moving forward,” Mr Hess said in an interview on 6 November. A Hess spokesman in New York was even more emphatic to MEES on 9 November. “We will do whatever needs to be done,” he said, referring to compliance with US Government directives.
The UK’s second largest independent oil and gas exploration and production company, the Lasmo Group has a turnover of more than $1bn and a market capitalization of $1.5bn-2.0bn. Lasmo has operations in the core areas of UK and Indonesia, along with other interests in Algeria, Libya, Pakistan, Turkmenistan, and Venezuela.
The group has proven and probable net oil and gas reserves estimated at 1.24bn barrels of oil equivalent (boe), with oil reserves distributed between Venezuela (30 percent), the UK (21 percent), Indonesia (19 percent), Algeria (13 percent), Pakistan (10 percent), Turkmenistan (4 percent) and Libya (3 percent). As of 31 December 1999, Lasmo’s worldwide production levels averaged 178,000 boe/d.
Lasmo has been active in Libya since 1990, when it became the operator of concession NC174 in the Murzuk Basin in the southwest of the country. In 1997, Lasmo made the largest discovery in 13 years with the Elephant field, some 500km south of Libya’s Mediterranean coastline.
Lasmo’s first appraisal well, F2-NC174, tested 9,000 b/d of 39° API crude from net pay of 100ms while its second well, F3-NC174, tested 8,400 b/d of 30° API crude from net pay of 90ms (MEES, 23 February 1998).
Following further appraisal the field was estimated to have in-place reserves of 1.5bn barrels, and development plans approved in 1999 call for a first phase production of 50,000 b/d by 2002, rising in a second phase to 150,000 b/d (MEES, 24 April).
Lasmo’s partners are Italy’s Agip and a South Korean consortium led by state-owned Petroleum Development Corporation (Pedco) and including Hyundai, Daewoo, Majuko, and Daesung Industrial Company (MEES, 1 June 1998).
In Iran, Lasmo is a partner with Shell, Veba and Iran’s Khazar Exploration and Production Company (Kepco) in an exploration study of the South Caspian Basin, which includes a virgin deepwater play which the National Iranian Oil Company (NIOC) is keen to explore.
The group, having acquired 10,000 line km of new 2D seismic data over the basin and interpreted existing data from Iranian and former Soviet exploration programs, is expected to submit its findings to NIOC within a month (MEES, 24 July).
Lasmo is also bidding to undertake an enhanced oil recovery program in the Bangestan formation of the Ab-Teymour field, one of three fields comprising the Ahwaz-Bangestan project which NIOC recently decided to fast-track (MEES, 23 October).
Earlier, Lasmo was a bidder on the project to develop the Darquain oilfield which NIOC eventually awarded to Italy’s Eni (MEES, 29 May).
Hess’s hopes notwithstanding, the US Government remains opposed to any US investments in Iran or Libya and the State Department last week said Hess’s purchase of Lasmo would be referred to OFAC. Analysts expressed skepticism that Hess could evade US sanctions legislation by setting up a foreign subsidiary to continue Lasmo’s operations.
“It wouldn’t work,” said one US lawyer who has provided extensive advice to oil companies investing in both Libya and Iran. “If they set up a foreign subsidiary, it would be effectively dominated and controlled by the US parent.”
Some observers suggest that Hess is hoping for a rapid relaxation of restrictions under a US administration led by George W Bush whose vice-presidential running-mate, Dick Cheney, has campaigned for a resumption of ties with Iran.
In the absence of any such quick fixes, though, other observers believe Hess might have to divest itself of Lasmo’s Iranian and Libyan assets. With the value of the Libyan concession amounting to just 6 percent of Lasmo’s current share price, divestiture might not prevent the deal moving forward.
But divestiture also poses the question of whether Lasmo would have to dispose of its Libyan and Iranian assets before Hess could legally acquire it.
The uncertainty over Hess’s purchase was underlined on 8 November when Chevron of the US announced it had purchased data on Iran’s South Pars field development, but had declined to bid on the project out of concern for the consequences of US sanctions.