Via The Wall Street Journal, a report on the waning interest in – and potential of – Libya’s petroleum sector.  As the article notes:

“…The release of the Lockerbie bomber triggered speculation that British energy companies trying to access Libya’s oil wealth could soon hit a bonanza. But in reality, Big Oil is already there, and its interest in Libya is cooling.

The initial enthusiasm that accompanied Libya’s first rounds of oil licensing — held soon after international sanctions were lifted in 2004 — has worn off, a casualty of arbitrary laws, Draconian contractual terms and Byzantine bureaucracy.

Since last week, when the Scottish government released Abdel Baset al-Megrahi, the Libyan convicted eight years ago in the 1988 bombing of Pan Am Flight 103 over Lockerbie, Scotland, there has been speculation that it was part of a political deal between London and Tripoli: In exchange for Mr. al-Megrahi’s release, Libya might make life easier for British companies, such as BP PLC and Royal Dutch Shell PLC, that want to do business in Libya. That theory is vehemently denied by both British and Scottish officials.

And industry officials say they doubt the Scottish move could ease the massive bureaucratic obstacles British companies have faced in Libya.

“That might prove illusory,” said Mehdi Haroun, a partner at legal firm Herbert Smith LLP in Paris who advises oil firms working in North Africa. Even if Col. Moammar Gadhafi’s government becomes more favorably disposed toward foreign companies, “you still have to face the inertia of the administration,” he said.

Libya has a long tradition of demanding political concessions in exchange for commercial deals. There is a “pattern of using its oil and gas reserves for political ends,” says Samuel Ciszuk, a Middle East analyst at IHS Global Insight, and a tendency to apply “political pressure to influence negotiations” with oil companies or their home governments.

He cites the jailing of the Libyan representative of Russian oil company OAO Lukoil during commercial negotiations with Libya’s national oil company in 2007. The executive, who was detained on suspicion of espionage, was released in July 2008.

Libya has the largest proven oil reserves of any African country, with 43.7 billion barrels, according to BP. Oil companies have piled in since sanctions were lifted, attracted by some of the world’s most promising unexplored oil and gas acreage and its proximity to the huge European energy market.

Libya has held four licensing rounds over the past four years, dishing out contracts to supermajors such as Exxon Mobil Corp. and smaller companies including Petro-Canada, a unit of Suncor Energy Inc. It has also brokered two big bilateral deals — one with Royal Dutch Shell in 2005 and one with BP in 2007. BP’s $900 million agreement was one of the biggest exploration deals in the company’s history.

But Libya has proved a difficult country to operate in. Oil companies often have to pay heavy customs duties on imported equipment, despite the exemptions written into their contracts. Onerous labor laws require them to hire Libyan nationals even when they lack the appropriate skills. Signing a simple rental agreement for an office can be hard, because of the chaos of competing ownership claims.

As oil prices began to soar over the past two years, Libya squeezed more out of foreign investors. Companies like Austria’s OMV AG and ENI SpA of Italy were obliged to renegotiate their contracts to comply with new, tougher fiscal terms. In exchange for extending the length of their licenses, they had to pay huge signing bonuses and agree to a much smaller share of production from the oil fields they operate.

Mr. Ciszuk of Global Insight says Libya put pressure on the companies to agree to the new terms by getting the Libyan parliament to call for full nationalization of the oil and gas sector. The initiative was dropped as soon as the oil companies fell in line, he says.

In the latest licensing round, in December 2007, companies had to bid even lower shares of production to win exploration permits. Most of the victors of that round were big state-owned companies like Russia’s Gazprom and Sonatrach of Algeria, better able to swallow tougher terms than publicly listed majors that require a higher investor rate of return.

Another factor has taken a shine off Libya: the lack of big oil discoveries to underpin companies’ enthusiasm about the country. Since 2008, Occidental Petroleum Corp., StatoilHydro ASA of Norway, British natural-gas producer BG Group PLC and ENI have all drilled dry holes. BG says it has found nothing commercially viable in Libya and is refocusing on other areas.

“Foreign investors no longer see Libya as the new El Dorado it appeared to be after international sanctions were lifted — especially in the current economic climate,” says Herbert Smith’s Mr. Haroun.”