Reagan Clears Way for Occidental to Sell Libya Holdings

President Reagan’s decision Thursday to let U.S. oil companies return to Libya opens the way for Occidental Petroleum to finally sell off its interests there, a step that would end a turbulent and controversial era for Oxy and its well-traveled chairman, Armand Hammer.

Oxy officials refused to comment on the move by the White House or say what the oil, gas and chemical company would do now. But the firm has previously said it is looking for someone to buy its holdings in Libya. Thursday’s action makes that possible.

The five U.S. oil firms with Libyan operations--Oxy, Conoco, Marathon, Amerada Hess and W. R. Grace--have been barred from doing business in Libya since 1986. The ban was intended as part of economic sanctions aimed at Col. Moammar Kadafi.

In lifting the ban, Reagan is authorizing the oil companies to sell their interests, transfer them to a subsidiary, or operate them directly by staffing with non-Americans.

In the case of Oxy, whose holdings there are described as separate from a joint venture involving the other U.S. firms, many observers believe that the holdings--worth an estimated 30,000 barrels a day of oil production when the company pulled out--will be sold.

A frequently mentioned buyer is the British oil firm Lonrho PLC, said a U.S. expert on Libyan oil. Another source said Oxy fully intends to sell the holdings, and declared that “a lot of people would be interested. It’s a valuable concession.”

Oxy sold part of its Libyan concession several years ago, and shares its remaining interests with the state-owned oil companies of Libya and Austria. In 1986 and 1987 financial documents, Oxy said it was “pursuing” the sale of the remaining holdings.

May Need Inspection

That is consistent with Oxy’s strategy of recent years to cut back on its foreign oil and gas holdings and become more of a North American firm in terms of its energy reserves. The biggest example of that was the sale of half its big Colombian oil fields to Shell.

But analysts said they believe that any sale would await an inspection of the condition of the oil wells and reservoirs after three years under Libyan control. Oxy says its net interest at the time it left Libya in June, 1986, was about 30,000 barrels a day, which currently would fetch perhaps $165 million a year--roughly 1% of revenue.

Analyst Andrew Gray III of Pershing & Co. in New York said that, in any case, Oxy no longer carries the Libyan holdings on its books. A return to Libya or the sale of the concessions “could not be a negative. If they sold it for $1, it would be positive,” he said.

Oxy’s role in Libya dates to the 1960s, when the world’s oil companies were discovering vast reserves of crude there. Depending on whose account is believed, Oxy--then a far smaller company than it is today--either had braver leaders and smarter geologists or paid bigger “commissions” to Libyan royalty than their larger competitors to obtain the most desirable concessions.

Libyan crude became vital to Oxy, which proved to be the most vulnerable of the foreign oil companies to the pressures brought by Kadafi when he came to power in 1969. Kadafi targeted Oxy in an historic initiative to change the commercial formula under which oil companies operated in the Middle East.

Hammer, then aged 72--who tells in his latest autobiography of flying to Tripoli incognito to negotiate with Kadafi--caved in to Kadafi’s terms under the threat of Libya’s seizure of the company’s assets there. Libya at that point provided some 90% of Oxy’s oil, according to Hammer.

Historians are still sifting through details of that deal and the possible U.S. tax advantages it created for Oxy. But there is wide agreement that Oxy’s capitulation triggered a full-scale retreat by foreign oil companies that shifted the power in the oil industry away from the multinationals to the Middle East producing nations themselves.

That was to make possible the Arab oil embargo of 1973 and the nationalization of the Middle East’s oil fields, and it earned Hammer the enmity of oil executives and many others around the world.

“If I’d known what a heap of trouble I was bringing on my head by getting involved in Libya, I would have thought twice before beginning,” Hammer later wrote. “Having thought twice, I still would have gone ahead.”