LOS ANGELES: With Libya coming in from the cold, the race for its oil is heating up. Eighteen years ago, the last US oil companies were ordered out of Libya when Washington placed sanctions on the government of Col. Moammar Qadhafi , whom President Reagan called the "mad dog of the Middle East."

Now the Bush administration has opened the door for oil giants to reclaim a tantalizing prize: a huge, untapped source of crude. The US companies' effort carries risks, and it's unclear whether they will be able to wrangle favourable terms from Qadhafi.

But major oil discoveries are hard to come by these days, as tight supplies have lifted prices to near record highs, and Libya stands as a rare source of available crude that can't be ignored.

"It's like kissing a porcupine," said Scott Maberry, an attorney with the Ful bright & Jaworski law firm, which is helping some companies in their Libyan effort. "You can do it, but you've got to be careful. But people are highly motivated in this case."

Indeed, executives of several major oil producers and Libyan officials are meeting this week in Tripoli, the Libyan capital. Among them are two major California oil companies, Occidental Petroleum Corporation of Los Angeles and Chevron Texaco Corporation of San Ramon.

Occidental, in fact, has been considered a front-runner to resume operations ever since the Bush administration began lifting most US trade sanctions against the North African country earlier this year, citing Libyan reforms.

The company was a leading US producer in Libya before the sanctions, and its huge discoveries there in the 1960s transformed Occidental - then run by Armand Hammer - into a major oil company.

"Whether the price of oil is $25 or $30 or $40, Libya is an extremely attractive spot," said Stephen Chazen, Occidental's chief financial officer. "Libya for us is the best chance of a significant boost in production."

That won't happen overnight. The companies first have to iron out revenue-sharing agreements with Libya that would cover the cost and risk of their expansion there, while providing a profit.

Some executives have speculated that the first of those contracts could be announced this month. It's also likely to take at least a year for the US companies to modernize existing facilities to pump substantially more oil, analysts said.

Libya currently produces about 1.6 million barrels of oil daily. (By comparison, Saudi Arabia's output is about 9.5 million barrels a day.) Libya sits atop proven oil reserves estimated at 36 billion barrels by the US Energy Department. That's more than Nigeria and Mexico and, at today's prices, Libya's reserves have a market value of $1.6 trillion.

The high quality of Libya's oil - a light, "sweet" oil in the industry's parlance - appeals to US companies. "It flows easily and it's low in sulfur," which makes the oil cheaper to produce, refine and transport, said Poe Leggette, another Ful bright & Jaworski lawyer involved in the companies' Libyan effort.

For Libya, the return of US companies with leading-edge exploration and production technologies offers the means to dramatically bolster its economy. Oil accounts for 95 per cent of Libya's exports.

Its oil minister, Fathi ben Shatwan, said in April that his country hopes to attract $30 billion of foreign investment by 2015 to modernize and expand its oil infrastructure so that the country can hike its production to 3 million barrels a day. -Dawn/The Lat-WP News Service (c) The Los Angeles Times.