With Moammar Gadhafi's government crumbling and rebel forces claiming victories in Tripoli, the Libyan capital, oil companies and oilfield service providers were being very cautious about what steps would be taken next to bring the country’s oil industry back into production.

This would be the third country in North Africa to have a major change in government this year. Tunisia, Egypt and now Libya are all oil and gas exporters. Libya had a major impact on world oil prices when its 1.6 million barrels per day (MMbbl/d) of oil production were taken off the market. Now, just the expectation of that oil going back into the market is sending oil prices in a downward direction.

Oil, gas and service companies are closely monitoring the situation. There is a long list of companies with operations in Libya: ENI, ConocoPhillips, Wintershall, Hess, Total, Baker Hughes, Repsol, Halliburton, Marathon Oil, OMV, Arabian Gulf Oil Co., just to name a few.

The National Transitional Council, the rebel governmental group, has asked several companies to come back to the country to begin the process of restarting oil and gas production. ENI, as the largest oil producer in Libya, after receiving calls from rebels to begin work on assessing damage and reactivating facilities, was not sure when it would be safe enough to re-enter the country.

Caution remains the key word for all of the foreign companies with an interest in the oil infrastructure.

It is very unclear when production would return. On Monday, Goldman Sachs said that the fall of the Gadhafi regime and the rebel takeover points to production returning faster while Barclays Capital doesn’t expect the transitional government being able to oversee reconstruction for some time to come. Barclays pointed out that relatively few governmental agencies are operating and security is a major concern.

The oil companies do not know the extent of the damage to the infrastructure. Some storage tanks were destroyed at the country’s major oil port earlier in the fighting. What impact that will have on the ability of the country to transport oil will have to be determined. There would likely be damage to producing wells and other installations after being shut in for several months.

One aspect that Barclays noted is that the new government would probably renegotiate production-sharing agreements signed by the Gadhafi government. That may go easily if the new government puts a premium on generating income or more slowly if the rebels want a higher percentage from production.

In its report, Barclays stated, “Nonetheless, we expect the oil market to likely function on the basis of selling the headline before buying the later reality at more leisure: a sudden wave of market bearishness in the expectation of a swift return of production. The view is gradually likely to be given up as the new reality proves to be far more complicated.”

The dropping oil prices could provide another benefit for world markets. With the economic problems in several major industrial countries, such as the US, lower fuel prices could give an unforeseen boost to those economies. We will have to wait and see how the oil markets respond to the return of Libya’s black gold.