VZCZCXRO0477
RR RUEHGA RUEHTRO
DE RUEHTRO #0306 1051416
ZNR UUUUU ZZH
R 151416Z APR 09
FM AMEMBASSY TRIPOLI
TO RUEHC/SECSTATE WASHDC 4717
INFO RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHGA/AMCONSUL CALGARY 0004
RUEHRB/AMEMBASSY RABAT 0871
RUEHEG/AMEMBASSY CAIRO 1456
RUEHTU/AMEMBASSY TUNIS 0807
RUEHAS/AMEMBASSY ALGIERS 0930
RUEHVT/AMEMBASSY VALLETTA 0414
RUEHTRO/AMEMBASSY TRIPOLI 5246

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