BP, the global energy group, on Tuesday night announced a $900m (£455m) gas exploration deal with Libya, in a sign of Tripoli’s transformation from pariah to attractive investment destination for UK and US companies.

Tony Hayward, BP’s new chief executive, described the agreement as the group’s “single biggest exploration commitment”. The deal coincides with a visit to Tripoli by Tony Blair, the outgoing UK prime minister.

Describing the planned contract as “unthinkable” only a decade ago, Mr Blair said after a meeting last night with Muammar Gadaffi, Libya’s leader: “The relationship between Libya and Britain has completely transformed in the past three years.” Investment links were “going from strength to strength”.

US and British energy companies have been scrambling to get back into Libya over the past two years to secure a share of the country’s largely unexplored gas and oil reserves.

Their return follows the lifting of sanctions after Tripoli abandoned weapons of mass destruction and resolved the crisis over the 1988 bombing of an aircraft over Lockerbie, Scotland.

Some analysts said on Tuesday that BP was “a little behind the curve”, returning to Libya after oil groups including Royal Dutch Shell and ConocoPhillips. BP will also have to vie with companies long established in the north African country, such as Italy’s Eni and Spain’s Repsol.

Analysts on Tuesday said BP needed to expand in new areas, especially as it faced the threat of losing its licence to exploit one of its main Russian assets, the Kovykta gas field. “As Russia becomes more of a risk, BP’s portfolio starts to look weaker compared with Shell’s,” said Oswald Clint, oil analyst at Sanford Bernstein. “Opportunities are few and far between, and BP needs to grasp all the opportunities it can.”

BP withdrew from Libya in 1974 when the country’s oil industry was nationalised by Colonel Gadaffi. But early last year the company said it was in early-stage talks about gas projects.

A delegation of BP executives, including Mr Hayward, were in the Libyan capital last night as Mr Blair arrived in Tripoli for the beginning of his trip, part of an international tour before he stands down on June 27.

Mr Blair can point to Libya’s decision in 2003 to destroy its weapons arsenal voluntarily as a rare achievement in a foreign policy otherwise overshadowed by the war in Iraq.

Col Gadaffi has complained that his country has yet to see the benefits of disarmament. But with large oil and gas reserves, and a more open investment policy than most Opec members, Libya has become highly desirable for foreign companies.

Libya’s Sirte Basin is the largest oilfield in Africa, holding 22 per cent of the continent’s 300bn barrels of reserves. But foreign companies operating in the country are finding high taxes and royalties mean profit margins are lower than originally expected.

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