Oil Companies Want to Avoid Another Attack in Benghazi

The attacks in Benghazi on Sept. 11, 2012, that captured our nation's attention continue to spur debate on the stability, or lack thereof, in the region. The events that transpired on that day were heinous and will probably never be forgotten. One hope is that a heightened awareness has been created and that precautionary measures will be taken much sooner than they might typically have been implemented.

If the recent move by BP (NYSE: BP  ) is any indication, the lesson has been learned.

My reserves are bigger than yours
The importance of Libya to the oil world cannot be understated. The country, which has undergone dramatic changes since 2011, when Col. Moammar Gadhafi was killed by rebel forces, is home to Africa's largest proven oil reserves. The combination of these reserves with Libya's place at the OPEC table means that actions in Libya have far-reaching effects on the world's flow of oil.

Production in Libya has resumed faster than most expected. In May of last year, it's estimated that production totaled 1.4 million barrels per day. The light, sweet crude and natural gas that companies such as BP and Eni (NYSE: E  ) have been producing here account for around 95% of Libya's total export revenue. 

Trouble on the horizon?
During the conflict, oil and gas companies chose to halt activities within Libya. Royal Dutch Shell  (NYSE: RDS-A  ) has since chosen to abandon its operations in the country altogether. While it cited lack of success in test wells, I have to believe that regional tensions prodded this decision as well. As for BP, it lifted its force majeure in May of last year, but recent advice from the U.K. Foreign and Commonwealth Office prompted the company to announce the removal of all "non-essential overseas staff" from the country. 

To add validity to these warnings, Eni management spoke publicly about the tension-filled atmosphere just last week. While there are hopes that violence will eventually subside, it fears that near-term disputes are likely to continue. OPEC meets on May 31, and it will be interesting to hear if any comments are made regarding the actions and comments of two of Libya's most important producers. 

Spotlight on the risks of investing in energy
It has long been said that the potential for conflict in the Middle East is a key risk that all energy investors must take into account. This latest example shows that the traditional players (Iran, Iraq, Kuwait, and the like) aren't the only cause for concern. Africa's place on the oil and natural gas stage continues to grow even while many countries on the continent are rife with struggle.

While the lives of those directly affected by these conflicts are obviously more important than our portfolios, the discussion surrounding these risks is something that simply must be addressed when performing due diligence. I commend BP for taking measures to keep its employees safe and hope that this people-before-profits attitude extends beyond just one company or incident.

Conflicts can lead to supply disruptions and higher prices
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9/27/2016 9:53 AM
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