ExxonMobil (XOM), Marathon (MRO) Abandon Libya's Light, Sweet Crude as Militias Take Over

Michael Teague  |

It has been two years since the death of Muammar Ghaddaffi, and the alleged conclusion of the NATO-backed uprising that destroyed his regime. But it is unlikely that anyone still paying attention to the current state of Libya actually believes this narrative- definitely not the country’s beleaguered  citizens at any rate, who deserve first-mention here because they continue to pay the highest price as a result of post-revolution instability.

ExxonMobil (XOM), BP (BP), and Others on the Way Out

Judging by recent events, however, it would seem as though major oil companies have also had about as much as they can take of the new, “free” Libya. In September, ExxonMobil (XOM) , a company long-accustomed to operating in conflict zones and with unscrupulous governments, announced that it was scaling back its staff and operations in the country due to the level of instability.

Meanwhile, Marathon Oil (MRO) has been mulling over the idea of selling its own stake in a major Libyan consortium, at least before the government forbade it from doing so in October. And in November, the infamous BP Plc (BP) announced that it was looking to relinquish operational control of two blocks it had been exploring in the Sahara desert of the country’s south.

To this list must be added Occidental Petroleum (OXY) , who is also planning on selling off its Libyan assets, and Royal-Dutch Shell ($RDS.A), who already made its exit from the country last year. All of these companies have cited the security situation as the principal reason for their departure.

Regional Militias Stir Instability

Libyan oil production was put on hold until the end of 2011 when the fighting was officially over. Prior to the rebellion the country had been producing about 1.8 million barrels per day, and with the cessation of hostilities managed to recuperate about 1.5 million per day of this total. But it did not take too long for the country’s many unruly militias of various tribal and ideological persuasions, who were originally armed by Western countries for the purpose of defeating Ghaddaffi, to catch on to the fact that the only leverage the central government had against them was oil revenue.

And so it is that Libyan oil production had been cut in half by July of 2013, and has since then been completely put on hold at some of the country’s key refineries, but the woes do not stop there.

What Westerners are accustomed to thinking of as Libya is actually a vast, sparsely populated  territory that is comprised of three historically distinct regions; Tripolitania in the West, centered around the capital Tripoli, Cyrenaica in the East, with Benghazi as its capital, and the Fezzan region in the Southwest. Despite Ghaddaffi’s excesses and brutality, his shrewdness at playing off the different tribes against one another was what kept the country together for nearly four decades, and with his removal, the divisions have become pronounced.

The increasing disruption of oil production by regional militias has taken a more severe turn as of late, though. In the country’s eastern half, a shadow government seems to be taking form. Indeed, the “Barqa government” as it is being called (Barqa is the Arabic word for Cyrenaica), has halted oil production from the east since summer, and as recently as Nov. 11 claimed that it was forming its own regional company to handle oil sales, and has even promised to split revenues with the rest of Libya more fairly than has so far been done by the anemic central government.

It remains to be seen whether or not this so-called Barqa government will be able to hold things together any better than the nation's elected government, and if so, to whom it might want to sell Libya's oil.

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