Picture: THINKSTOCK
Picture: THINKSTOCK

ISTANBUL — The head of Libya’s state-oil company on Wednesday said he is meeting major oil companies such as BP to try to stimulate the country’s potential to produce petroleum, after Islamic State recently inflicted heavy damage to a key oil export terminal.

Mustafa Sanallah, chairman of the state-run National Oil, said he was meeting France’s Total, Eni of Italy and the UK’s BP, among other companies in Istanbul, trying to convince them to resume exploration efforts in Libya, as a unity government is expected to take power in January. In the power vacuum that emerged after the ouster and death of dictator Muammar Gaddafi 2011, militia groups have divided the country between the east and the west.

An internationally backed government in the east has clashed with an Islamist group of militias known as Libya Dawn, which controls Tripoli and much of the country’s west. Western oil companies scaled back much of their operations in Libya when violence between militias erupted last year, pulling their expatriate employees and in some cases leaving the country altogether.

"The situation will stabilise once a unity government is formed. I am optimistic this will happen," Mr Sanallah said in an interview.

BP and Eni declined to comment. A Total official confirmed the talks but declined to comment further.

It is unclear how quickly oil companies that have left Libya would return.

In December, representatives of Libya’s two rival governments signed a power-sharing agreement brokered by the United Nations (UN) that called for the formation of a national unity government by mid-January.

The pact is seen as essential for getting Libya’s oil industry back on track after more than a year of falling production.

But there remains opposition from some militia groups to the agreement. The rise of extremist group Islamic State has inserted a new note of instability to the country, unleashing a wave of violence against oil facilities.

The Sunni militant group set as many as seven oil storage tanks on fire and set off car bombs at east Libya’s As Sidra terminal last week.

The attacks on the terminals last week stoked the fear that the Islamic State plans to undermine the financial viability of the unity government by destroying the country’s main source of revenue.

The threat was underscored by the location of Mr Sanallah’s meetings with oil company officials.

For security reasons, such meetings are held outside Libya, with Istanbul a favourite because of good flight connections with Tripoli.

Libya’s National Oil has struggled to resume oil production after a year of violence targeted at its energy facilities from multiple sides.

Militia groups had badly damaged the country’s production capacity early last year, even before the Islamic State’s more recent attacks.

The country has Africa’s largest crude-oil reserves and has the potential to produce about 1.5-million barrels a day.

It currently was pumping about 380,000 barrels a day, Mr Sanallah said. If a unity government were formed, Mr Sanallah said production could rise to 1.2 million barrels a day.

With oil prices falling to levels not seen in more than a decade — less than $31 a barrel at times in recent days — Libya had an advantage over more expensive producers because it generally cost less than $10 a barrel to extract its oil, he said.

But the Islamic State’s recent attacks would delay the return of 300,000 barrels a day of output, about 20% of the country’s capacity, Mr Sanallah said.

Following last week’s attack on Es Sider and previous fighting nearby, only three storage tanks were still usable out of 19 at the port, he said.

The tanks would be out of order "for a long time", he said.

By contrast, most facilities at a neighbouring port, Ras Lanuf, that was also attacked were largely intact, Mr Sanallah said.

Wall Street Journal