A Libyan sovereign wealth fund has reached an agreement to acquire the Canadian company Verenex Energy after Libya's state petroleum company blocked a more lucrative Chinese offer. Verenex, a small exploration company with big Libyan oil and gas discoveries, said it had entered a binding agreement, worth about C$316 million (Dh1.09 billion), for the Libyan Investment Authority (LIA) to purchase its outstanding holding for C$7.09 per share.
That is nearly 30 per cent less than the C$460m, or C$10 a share, that China National Petroleum Corporation (CNPC) had offered for Verenex in February. That deal collapsed two weeks ago, after the Libyan National Oil Company (NOC) withheld approval needed for the transaction. James McFarland, the president and chief executive of Verenex, said yesterday: "The Libyan Investment Authority is a highly respected Libyan institution with a solid track record of doing deals. Our focus has always been on doing the best for our shareholders."
The company said its directors had determined that the proposed transaction represented "the best alternative reasonably available to Verenex and its shareholders". But the alternatives on offer could not have been extensive, as the tiny company was in no position to finance a drilling programme to prove the commercial viability of its recent discoveries in Libya's prolific Ghadames basin. Earlier, Mr McFarland had said Tripoli was seeking to negotiate a reduced purchase price for Verenex.
The deal announced yesterday is the latest in a series of moves that have increased Libyan state control of the country's oil and gas resources while raising questions about Tripoli's reliability as a business partner. This year and last, NOC has renegotiated a number of production-sharing contracts with foreign oil companies, forcing them to accept a smaller share of revenues in exchange for contract extensions or renewals.
In January, as NOC held discussions with the last holdouts, the Libyan leader, Muammar Qadafi, threatened to nationalise the country's petroleum sector. By May, the state oil company had renegotiated a series of contracts with Total of France, Wintershall of Germany and Norway's StatoilHydro. Libya has also tightened up its requirements for foreign companies to hire Libyan nationals and now requires joint ventures with foreign partners to appoint Libyan chief executives.
According to analysts, Tripoli's increasing resource nationalism has not only eroded the appetite of many foreign investors for doing business in Libya but is also fuelling divisions among the country's political elite. Last week, government sources confirmed that Shokri Ghanem, a former Libyan prime minister, was no longer serving as chairman of NOC, after rumours that he had quit. Mr Ghanem had recently raised concerns that politicians with no industry experience were pushing resource nationalism too far. He had urged Tripoli to pre-empt the Chinese offer for Verenex by matching it, but had reportedly disapproved of the government's tactic of blocking the deal to acquire the company at a lower price.
Libya has Africa's biggest proved oil reserves, but has failed to match the production capacity of Nigeria and Angola in recent years, despite the return of foreign investment after most international sanctions against Libya were lifted in 2004. The LIA, which has about US$65bn (Dh238.74bn) in assets, was founded in 2006 to invest Libya's excess oil revenues. Like most other MENA sovereign wealth funds, it has mainly invested overseas.
But as foreign investment becomes harder to attract, Tripoli now appears to be turning to state-controlled financing to further develop its oil sector. @Email:tcarlisle@thenational.ae