Shell has decided to quit its Libyan exploration blocks amid insecurity and harsh contracts, in the first such move since the overthrowing of Muammar Gaddafi’s regime.

At the same time, the Anglo-Dutch giant insisted it was still interested in the country, which holds Africa’s largest oil reserves.

The move nonetheless casts a cloud on Libya’s oil recovery as Shell had originally planned sizable investments in the blocks.

A Shell spokesman in London confirmed to Upstream that the company’s Libyan arm had “informed the National Oil Corporation (NOC) that it intends to suspend and abandon drilled wells and stop exploration in Libyan licenses LNGDA and Area 89”.

The spokesman put the halt down to economic rather than political reasons.

“Despite an extensive seismic and drilling campaign in these licences, results have been disappointing and further exploration cannot be economically justified,” he said.

Shell said that NOC had already acknowledged its decision, adding that the explorer intended to “actively pursue new upstream business opportunities” with the Libyan state player. 

Libya’s oil production has fast recovered since the toppling of Gaddafi last year, but foreign companies complain of tough contracts and of persistent insecurity, according to Dow Jones.

The deals, which the new government says it won’t change, had already led to the exit of several companies under the old regime. Others, like Germany’s Wintershall, have warned the terms could impede decisions on new investments.

In 2004, Shell signed preliminary deals with Gaddafi’s regime potentially worth billions of dollars of investments, from exploration to a possible liquefied natural gas plant.

After interrupting its operations when the civil war started in early 2011, Shell said in February it was studying a return to Libya.

But insecurity, including frequent attacks on oil officials, contributed to its decision to abandon the exploration blocks, according to people familiar with the matter.

British oil giant BP, which signed a $900 million exploration deal in 2009, has yet to resume operations in part due to insecurity, while other companies have kept the return of foreign staff to a minimum.

However, a BP spokesman said it still intends to return to Libya.

Source: Upstream Online