Canada's Verenex Runs Short of Time for China Deal

Canada's Verenex Energy Inc. is running short of time to get Libyan approval for its $460 million sale to China, making some investors pessimistic that the deal will go ahead.

Verenex, a small Canadian oil company working in Libya, needs Libyan consent by Aug. 24 for the China National Petroleum Corp (CNPC) deal to go ahead. While Libya has said it will pre-empt the bid, it has not made a formal offer and has not given consent to the Chinese deal.

Investors in Verenex were prepared for the possibly of the deal collapsing, but some said they still expected Verenex and the Chinese to continue to seek Libyan approval for the C$10-a-share sale.

"I think it's done, it's over," said one holder of Verenex shares who declined to be identified. "The Libyans have all the leverage - they can do what they want and they are going to."

OPEC member Libya, home to Africa's largest oil reserves, has attracted interest from oil companies since most international sanctions were lifted in 2004. But Verenex's problem highlights that emerging markets are not for the risk averse. A second Verenex investor was more hopeful, saying there was a chance that the outside date of the CNPC deal could be moved beyond Aug. 24 as talks were making progress, giving more time to obtain Libyan consent.

"The negotiations are pretty active," the investor said. "It's possible they will extend the outside date if there is progress being made."

Verenex shares, which traded near C$10 in March, were down 3 percent at 1536 GMT on Friday at C$7.18. A third Verenex investor also thought the deadline for the deal would be extended.

"My guess is they will extend it," the investor said. "The Chinese want to be there and the company wants to sell. It would be a gift to Libya to call the whole thing off."

China, the world's second-largest oil consumer, is seeking energy reserves to feed its growing economy. Verenex holds promising oil assets in Libya, where it has drilled 21 wells with a 95 percent success rate.

Verenex said on Aug. 10 it was still seeking Libyan consent for the company's sale to CNPC, but the company has put together a draft arbitration claim for use as a last resort.

"Clearly neither party wants to go the legal route on this thing and we're trying to figure out the best way to come up with an amicable solution," Verenex CEO Jim McFarland told Reuters in July.

Shokri Ghanem, the chairman of Libya's National Oil Corporation (NOC), has repeatedly said the NOC will match the CNPC offer. He declined to comment on Verenex when contacted by Reuters on Thursday.

With the assumption of debt, the offer from CNPC was worth C$499 million (equal to $460 million on Friday), the companies said when it was announced on Feb. 26.