Barely a year after its oil fields in Ecuador were seized and it sold off its exploration rights in Peru, Occidental Petroleum Corp. is once again staking much of its future growth in a politically risky area: Libya.

Last week, the Los Angeles-based independent oil giant announced that it and Austrian oil company OMV AG had reached a 30-year deal with the National Oil Co. of Libya to essentially triple production in that country. Under the revised contract, Occidental would invest nearly $3 billion over the next five years for a cut of up to 12 percent of what’s expected to be about 300,000 barrels per day.

The deal increases Occidental’s presence in the Middle East-North Africa arena, which has the world’s largest proven oil reserves but remains a risky place to do business.

It’s all the more remarkable considering that for most of the past 30 years, Libya was an international pariah for its covert and overt support of terrorism against the United States and other Western countries. Only in 2004 did harsh international sanctions start to be lifted after Libyan leader Moammar Kadafi renounced support for terrorism and agreed to cooperate with international nuclear inspectors.

Occidental had oil exploration and production contracts in Libya starting in the 1960s right up until sanctions were imposed in 1986. When sanctions began to be lifted, Occidental chairman and Chief Executive Ray Irani made repeated trips to the country and in 2005, Occidental became the first U.S. oil company to reach an agreement with Kadafi and the National Oil Co. to resume production, generally under the same operating terms as the pre-sanction contracts.

With this revised 30-year contract, Occidental is betting on Libya’s future stability and continued friendly relations with the U.S. after Kadafi leaves the scene.

“This new project establishes Libya as a core country for Oxy’s production and we believe it will open the door for us to add additional growth projects in a country with large oil and gas reserves,” Irani said in a statement.

While few oil industry analysts doubt the existence of substantial oil reserves in Libya, they point out that those untapped reserves exist precisely because the country was closed to international investment for nearly 20 years.

“Production in Libya has been stagnant for many years; they need foreign investment if they want to grow their oil production,” said Pavel Molchanov, equity research analyst with St. Petersburg, Fl.-based Raymond James & Associates Inc.

A bigger question is whether future Libyan governments will be as open to Western investment as Kadafi is today and whether relations between Libya and Western nations remain on an even keel, or as Wall Street Access analyst Bernard Picchi put it: “Do you think the country will be stable and the spirit of this particular accord will last 30 years?”

It’s possible that some future Libyan government could decide to nationalize oil production, as is happening now in Venezuela and other Latin American countries. In Occidental’s deal, that process would be made even easier by the fact that the National Oil Co. is already fronting half the $5 billion development cost and will take in more than 75 percent of the production revenues.

But analysts say it helps Occidental that there is widespread expectation that Kadafi will either anoint his son or a close ally to succeed him. “More than likely, this will turn into a situation similar to the Middle Eastern monarchies of today,” Molchanov said.

Also, Picchi noted that most of the return for Occidental under the deal would take place in the first 15 years, narrowing that window considerably.

Company executives downplay the risk of unpredictable events in Libya or with Libya’s relations with the rest of the world, saying that the company’s diversity of oil production assets in three core regions North America, the Middle East/North Africa region and Latin America acts as a hedge against problems in any single region.

A spokesman reached last week said the company’s strategy for the foreseeable future is to maintain the majority of its production capacity in North America. The spokesman noted that Occidental’s U.S. operations, concentrated in California and the Permian basin of Texas and Oklahoma, now account for about 63 percent of total production revenues. Thirteen percent comes from Latin America and about 23 percent from the Middle East/North Africa.

However, this spokesman noted that the most room for production growth is not in the U.S. but in the Middle East and North Africa, which is why Occidental and its chairman have been so focused on developing production there. Over the years, Irani, who was born in Lebanon, has made repeated trips to the region, meeting with both political leaders and oil industry executives. Essentially, this spokesman said, Irani has been personally fulfilling the role that Middle East oil consultants play at other major oil companies.

Besides Libya, Occidental has recently completed an up-front investment for its 25 percent stake in the huge Dolphin Energy project, which includes a 230-mile long pipeline to bring natural gas from offshore fields near Qatar to market in Dubai. By year’s end, Occidental’s production share is expected to reach 65,000 oil-equivalent barrels per day.

Of more concern to Occidental investors were the terms of the Libya deal itself. Investors first focused on the fact that Occidental’s share of production revenues was declining to a maximum of 12 percent from 20 percent under existing contracts. This seemed to fit in with an increasing trend of oil-rich countries renegotiating contracts more to their advantage when oil prices started getting near $100 a barrel.

Indeed, a statement from the National Oil Co. appeared to reinforce this perception:

“These modified agreements will reduce the interest of the Second Parties (Oxy & OMV) to levels below the current levels and will further reduce as production increases.”

Attempts to obtain comment from the National Oil Company were not successful.

But Oxy’s shares rebounded in subsequent days after analysts got a closer look at the deal and its tax implications; Occidental’s stock closed at $69.98 on Nov. 29, only about 1.5 percent below the pre-deal level.

Specifically, analysts noted that Oxy’s take of 10 percent to 12 percent of revenues referred to the after-tax amount, while the old 20 percent revenue cut was before taxes. “On an after-tax basis, these are better terms than the old contracts,” Molchanov said.

How much this will accrue towards Occidental’s benefit will depend greatly on oil prices. If oil prices stay above $70 per barrel for most of the contract duration, Occidental will realize “very good returns of 25 percent or greater” on each barrel produced, Picchi said. But if oil prices go below $45 per barrel, then the returns would likely be in the single digits.

Producing oil in foreign countries can be risky. In May 2006, the government of Ecuador seized oil fields operated by Occidental, which had been generating about 42,000 barrels per day, or about 7 percent of Occidental’s worldwide production. Occidental challenged the seizure, filing a $1 billion claim in the International Center for Settlement of Investment Disputes, an arm of the World Bank. That claim is still pending.

A few months later, Occidental sold 6.3 million acres of land it held for oil exploration in the Peruvian jungle. At the time, the company said the sale was part of a strategy to focus more intently on operations in North America and Middle East/North Africa. But environmental groups and native Peruvian tribes claimed that their pressure to get Occidental to pay for cleanup of its current and former holdings was the reason for the sale.