German exploration and production company Wintershall Dea will adopt a wait-and-see approach to Libya, despite the lifting of a blockade and a surge in production.
The producer is also bullish about hydrogen's potential as a fuel that can help to combat climate change.
"I think we still have to see proof that there is more stability. I appreciate that it is a positive development that the blockade of the terminals has been lifted, and that there is a new government in place preparing for elections," chief executive Mario Mehren told The National.
"But it is all very fragile in Libya, so I would still tend to be cautious.”
Wintershall Dea, a subsidiary of the world’s largest chemicals company, BASF, has been operating in Libya since 1958.
The company also operates in Egypt and has a 10 per cent stake in Abu Dhabi's ultra-sour Ghasha concession. Wintershall Dea is working alongside Adnoc, Lukoil, Eni and OMV to raise production from the fields to 1.5 billion cubic feet per day of gas and 120,000 barrels per day of crude and high-value condensate by 2025.
Libya, a key Opec producer, resumed production after a peace deal was brokered between the country's warring factions.
The North African country could produce 1.45 million bpd by the end of the year, Mustafa Sanalla, chairman of the National Oil Corporation, told Bloomberg last week.
Libyan production is currently at 1.3 million bpd, with further increases contingent on the NOC receiving funds allocated to it under the budget and security at its oil installations.
Libya “is close to our heart”, Mr Mehren said, “but it is not moving the needle in terms of in terms of Wintershall Dea’s overall production”.
During the blockade imposed by Field Marshal Khalifa Haftar, Wintershall Dea managed to continue production from its offshore Al Jurf field, which it operates with the NOC and French energy company Total.
“There, the production is on a very stable basis,” said Mr Mehren.
Last year, the German company transferred the right to operate some of its onshore fields in the Sirte basin to a joint venture led by the NOC.
“This handover happened in October and we have seen first liftings since then, so production is up and running again,” said Mr Mehren.
He declined to specify the volumes produced by Wintershall Dea onshore but said “what can be produced is currently being produced”.
Wintershall is optimistic about “big potential” associated with the development of hydrogen, particularly Russia's large natural gas reserves.
The company will prioritise the development of the resource as part of its efforts to reach net-zero emissions by 2030.
“There is a significant potential for German-Russian co-operation in carbon capture and storage, in using the depleted reservoirs and their infrastructure in Western Siberia as well as in the exploration and use of potential aquifers in Eastern Siberia,” said Mr Mehren.
The German company posted a loss of €1.33 billion ($1.6bn) in 2020, which is more than double the deficit it registered in the previous year.
Wintershall Dea plans to spend between €1bn and €1.1bn this year, with €200 million to €350m allocated to exploration.
“It is going to be dedicated to a large extent to Norway and to Mexico,” he said.
The company said there is significant potential for discovery on the southern side of the Gulf of Mexico, after discoveries were made in the Polok and Chinwol prospects.
“We are basically looking into our existing portfolio and optimising that; we are not planning to go into any new countries,” said Mr Mehren.
The company plans to increase its production to between 620,000 barrels of oil equivalent per day and 640,000 boepd, from 623,000 boepd last year.
Wintershall Dea will operate on the basis of a conservative range of $40 to $55 a barrel despite prices being 75 per cent higher than they were in November and currently trading close to $70 a barrel.
Mr Mehren cited "volatility and uncertainty" and said even if prices were to average $60 per barrel, the company would only benefit from that.
Wintershall Dea, which merged with Dea, owned by Russia's LetterOne in May 2019, is still considering an initial public offering this year. It had initially targeted a listing by the second half of the year, possibly in Frankfurt.
The company is "prepared for an IPO" but the decision to go public will be made by shareholders, BASF and LetterOne, Mr Mehren said.