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Royal Dutch/Shell is returning to Libya with a deal to explore for oil and gas, leading a race by western firms to cash in on the state’s return from an international wilderness.

Shell says it has signed a deal with Libya for a “long-term strategic relationship” with the North African country to search for new energy reserves and develop existing natural gas facilities.

The agreement was signed by officials from Shell and Libya’s National Oil Company (NOC) in Tripoli to coincide with the landmark visit by UK prime minister Tony Blair, reflecting thawing relations between the two countries.

Other British and US firms are also understood to be negotiating a return to the oil-rich nation, battling for a share of the spoils of rebuilding the country’s ramshackle industries such as energy and tourism.

“I am delighted by the warm invitation to Shell from the Libyan National Oil Corporation to participate in the country’s oil and gas industry,” Shell’s head of exploration and production, Malcolm Brinded, says.

“I look forward to our cooperation becoming a cornerstone in a renewed trade relationship between the UK and Libya,” he adds.

The deal covers the key principles for Shell’s participation in the Libyan upstream energy sector, including onshore exploration and the development of liquid natural gas (LNG) export facilities, the company says.

“Today’s landmark agreement provides a roadmap for future developments, which would involve Shell contributing to the efforts to enhance the country’s production capabilities, and particularly its LNG export capacity,” says Brinded.

Shell said it would continue negotiations on specific projects in Libya through this year, though it gave no financial details for the deal.

But a spokesman for Blair in the Libyan capital had said earlier that Shell was set to sign a contract worth US$200mn dollars with the Tripoli authorities, under an alliance that could eventually be worth as much as US$1bn.

The price of Shell shares rose 0.91% to 358.50 pence here after the announcement, while the FTSE 100 index of blue-chip stocks was ahead 0.92%.

The deal comes at an opportune moment for Shell, currently in the midst of a turbulent spell after admitting in January, and again this month, that it had overestimated its proven oil and gas reserves.

Blair’s visit to Libya reflects an improvement in relations between Britain and Libya – a country long accused by London and Washington of sponsoring terrorism – after Tripoli renounced its pursuit of weapons of mass destruction in December.

Libya is considered a highly attractive country for the world’s oil giants because of its low recovery costs, the quality of its oil and its proximity to European markets.

Shell was active in the country’s upstream sector from the 1950s until 1974, and conducted some exploration work in the late 1980s.