Big U.S. oil: Tepid on Libya

NEW YORK (CNNMoney.com) -- Libya is once again turning on the spigot.

In August, the country announced yet another round of bidding for energy contracts - this time for 41 offshore sectors that could hold natural gas worth billions of dollars.

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But while oil companies from Canada, Norway, Britain, Thailand, Japan, India, Algeria and the United Arab Emirates have expressed interest, no U.S. company has entered a bid in the latest round of bidding, according to a report in the Oil and Gas Journal (OJG), a trade publication.

Bidding from U.S. companies is not out of the question, though, as they have submitted bids and won contracts in previous rounds, according to oil industry analysts.

A spokesman for Occidental Petroleum said the big U.S. oil producer has not bid in the latest round but has won contracts in Libya before. A spokesman for ExxonMobil (Charts, Fortune 500) said the company had been awarded contracts in the past, but wouldn't say if the company would submit a bid during this round.

Officials at Chevron (Charts, Fortune 500), ConocoPhillips, Hess and Marathon Oil were not immediately available for comment.

The prize at stake is not trivial.

U.N. sanctions in place since 1992 had prevented most Western oil firms from operating in Libya after agents from the country's intelligence service were implicated in the 1988 bombing of Pan Am flight 103, which killed 270. The sanctions have left most of the country's natural gas reserves, along with a lot of its oil, fairly undeveloped.

The sanctions were lifted in 2004, after Libya said it was disbanding its nuclear program and finished cooperating in the Pam Am case. That opened the door for renewed investment in the oil and gas sector.

The country's current natural gas production is about 2.7 billion cubic feet a day, according to OGJ. That's about 5 percent of daily U.S. natural gas consumption.

But Libyan officials hope to eventually boost that to 3.8 billion feet a day, an amount equal to nearly half the production from the gas-rich U.S. Gulf of Mexico.

U.S. companies may be holding off from bidding until Secretary of State Condoleezza Rice visits the country in October, according to Anoushka Marashlian, a Middle East analyst at Global Insight, a political risk consulting firm.

Rice's planned visit, the first secretary-level meeting since the Pam Am bombing, is expected to be more of a symbolic pat on the back for disbanding the nuclear program as opposed to a push for additional reforms, said Marashlian.

Still, U.S. firms will want to make sure everything goes smoothly before committing millions or billions of dollars to a contract.

"At the moment, it's a wait-and-see policy," said Marashlian "After [Rice] visits, there will be more interest in a concrete bid."

U.S. companies may be exercising caution due to the uncertainty of how well the projects will pay off, said Fadel Gheit, a senior energy analyst at Oppenheimer.

Libya's proximity to Europe, a big market for natural gas, make it particularly attractive, said Gheit.

But he said most of the new projects are offshore, and the economics of any operation are far from certain.

"It's high risk, a new area," said Gheit. "Why go to Libya when you can go to Qatar, where they have natural gas coming out of their ears."

Still, like other analysts, Gheit noted that U.S. energy producers such as Hess (Charts, Fortune 500), Marathon (Charts, Fortune 500), ConocoPhillips (Charts, Fortune 500) and Occidental (Charts, Fortune 500) have bid on previous Libyan contracts, and he expects interest from U.S. companies before the bidding closes in November.