Shell, the Anglo-Dutch oil giant, has signed an agreement to re-enter Libya's oil and gas industry.
The Shell deal will boost UK-Libya trade ties
Announcement of the deal came as UK Prime Minister Tony Blair visited Libya for talks with Colonel Gaddafi.
The deal involves a long-term strategic partnership with Libya's national oil company, Shell said.
For many years Libya was off-limits for UK companies because of UN and US sanctions, but it is now courting foreign investors.
Cheap to extract
Shell said the agreement envisaged Shell participating in exploration and production, and developing liquefied natural gas (LNG) facilities.
It could lead to development of integrated production and LNG export projects, the company said.
Shell did not give financial details of the agreement and said negotiations on specific projects would continue throughout the year.
ALREADY IN LIBYA
Occidental (US - opened Libya office)
Libya is an attractive prospect for international oil companies because it has plentiful hydrocarbon reserves that are cheap to extract, a need for foreign investment following years of sanctions and it is close to European markets.
The UK is keen to see more major gas exporters emerge - UK demand for gas, particularly for power stations, has soared over the past decade and North Sea reserves are drying up.
Sanctions on Libya were lifted last year after Tripoli agreed to compensate relatives of those killed in the Lockerbie bombing.
Shell was active in Libya from the 1950s until 1974, and explored there in the late 1980s.
Mr Blair's visit has been criticised by some politicians and divided opinion among Lockerbie relatives.
British firms are keen to exploit business opportunities in Libya now the country is opening up.
The economy is viewed as ripe for modernisation and foreign investment. The greatest interest is likely to be in oil and gas and tourism, say economists.