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posted on Mar 18, 2009 12:53PM

Libya battles China to buy Verenex

The Associated Press

March 18, 2009 at 7:16 AM EDT

CAIRO — Libya's National Oil Company says it will buy Canada's Verenex Energy Inc., matching a $394-million bid by a subsidiary of the China National Petroleum Corp.

Shukri Ghanem, the head of Libya's state-run NOC, told The Associated Press that his company would exercise its right of first refusal, thwarting a bid by the Chinese oil giant to buy up the Canadian oil and gas firm that has extensive exploration and production interests in Libya.

NOC's agreement with Calgary-based Verenex gives it the right to block the purchase bid by CNPC. Verenex had said Monday it was waiting for a decision by NOC.

Verenex, which operates mainly in Libya, needs consent from the North African country's National Oil Company to go ahead with its $499-million sale to CNPC, also a state-owned firm.

Either way, Verenex shareholders will come away with the same price, said Alan Knowles, an analyst with Haywood Securities.

“I think they would end up with the same price, but we don't know how long the process will take. It adds another element of ambiguity to the time line,” he said.

CNPC's $10 per share deal carries a $15-million break fee payable to the Chinese company in the event of a superior bid. The Verenex board of directors had recommended shareholders tender to the offer.

On Monday, Verenex shares tumbled more than four per cent to $9.29 from their Friday close. On Tuesday they were down to $9.25, still up sharply from their 52-week low of $2.22 reached in October, before news that Verenex was looking for a buyer.

Verenex, which acquired rights to what's known as Area 47 in 2005 and has drilled 16 exploration and appraisal wells, released an estimate last year that the area contains 2.15 billion barrels of oil equivalent.

Verenex, 42 per cent owned by Vermilion Energy Trust, is the operator and holds a 50 per cent interest for an initial five-year period, reduced to 25 per cent for commercial developments in the subsequent 25 years.

The Libyan company has operations next door to Verenex's property, noted Mr. Knowles.

“So they're well aware of the success Verenex has, and it probably looks attractive to them at the price CNPC has negotiated,” he said.

Even so, he does not see the Chinese and Libyan state-run companies bidding against each other for Verenex.

“They will probably come to an arrangement with CNPC because CNPC is also active in the country and wants to be more active in the country. So you don't want to dissuade them from doing that if you're the NOC,” Mr. Knowles said.

- With files from the Canadian Press

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