Royal Dutch/Shell Group said it is actively in talks with the National Oil Company of Libya (NOC) for possible alliance in Tripoli's oil and gas sector.
A spokesman said: "Libya offers significant oil and gas prospects and we have been engaged in discussions with the National Oil Company regarding possible opportunities."
He would not confirm whether Shell is close to signing a gas exploration agreement with the NOC.
Agence France-Presse in Madrid, quoting a source in the British government, reported that Shell, along with BAE Systems, is close to signing commercial agreements with Libya.
The news came in advance of British Prime Minister Tony Blair's visit to the country tomorrow.
The potential deal concerns gas exploration rights off the Libyan coast.