NOC BLOCKS SALE OF CANADIAN OIL FIRM

UNCLAS TRIPOLI 000306

SENSITIVE
SIPDIS

USDOC FOR ITA/MAC/ONE (NATHAN MASON),ADVOCACY CTR (REITZA),AND
CLDP (TEJTEL AND MCMANUS)
CASABLANCA FOR FCS (ORTIZ)
AMMAN FOR ESTH HUB (BHALLA)
CAIRO FOR FINANCIAL ATTACHE (SEVERENS)
LONDON AND PARIS FOR NEA WATCHER

E.O. 12958: N/A
TAGS: ECON EINV EPET EFIN ETRD ENRG CA LY
SUBJECT: NOC BLOCKS SALE OF CANADIAN OIL FIRM


1. (SBU) Summary. On April 12, the President of Canada's Verenex
Energy, Jim McFarland, briefed the Ambassador on the
difficulties he has encountered in attempting to sell his
company to another foreign operator in Libya, the China National
Petroleum Company (CNPC). The gist of the problem is that
Libya's National Oil Corporation (NOC) has blocked the
transaction -- on questionable legal grounds, according to
McFarland -- leaving Verenex in a state of limbo. Meanwhile,
the NOC has demanded what amounts to a pay-off in the event it
permits the transaction to proceed. End of summary.


2. (U) Verenex, a relatively small-scale oil producer that was
awarded an exploration block in the Ghadames area five years
ago, is one of the few foreign companies that has made
successful discoveries in Libya. Verenex's field has estimated
reserves of 2.15 billion barrels and is expected to produce
50,000 barrels of oil per day and 50 million cubic feet of gas
per day by early 2011.


3. (SBU) In September 2008, Verenex announced a corporate sale,
opened confidential technical data of its Libyan assets to 22
companies previously approved by the NOC, and received bids for
the sale. After five months, Verenex announced that it had
entered into an agreement with the CNPC to acquire Verenex for
approx. USD 400 million. The deal, however, was subject to
NOC's approval.


4. (SBU) McFarland said that before signing the agreement with
CNPC, Verenex was pressured by the NOC to pay the NOC a "bonus"
equal to 10% of the value of the transaction with CNPC. NOC
assured Verenex that the corporate sale would be quickly
approved. But two weeks after Verenex announced the agreement
with CNPC, the NOC's chairman, Shukri Ghanem, announced that the
NOC might exercise its right of first refusal on the sale of
Verenex -- without indicating when it might do so. So far, the
NOC has not formally informed Verenex of its intention to
acquire the company, but has not approved the deal signed
between Verenex and the Chinese either, leaving Verenex in
limbo.


5. (SBU) According to McFarland, the NOC's legal basis for
halting the deal is questionable. The NOC's pre-emptive right
applies to the sale of the company's Libyan assets, not to the
entire company, he said. Verenex's strategy is to keep
advocating the NOC to approve the agreement signed with CNPC.
If, on the other hand, the NOC chooses to proceed with its
option to purchase Verenex, it could delay the sale further.


6. (SBU) Comment. Verenex's difficulties underscore the risks
foreign companies in all sectors face when doing business in
Libya, and with the GOL in particular, where GOL actions can be
highly unpredictable and sometimes costly. McFarland agreed
that there could be an anti-Chinese angle in the GOL move, but
conceded that the chances were slim. End comment.

CRETZ