Welcome to Libya, or Verenex: A case study of dealing with NOCs

If ever there was a case study of the tribulations inherent in dealing with a national oil company run by a meddling government, Verenex’s experience with the National Oil Company of Libya (Noc) is it.

In a recent statement Verenex threatened arbitration, name-dropped the Canadian government as its ally and ‘vigorously denied’ allegations thrown at it by Libya.

The trouble began when CNPC, the Chinese state-owned oil company, decided to buy Verenex, a small Canadian oil company whose raisons d’etre are its oil exploration assets in Libya’s Ghadames basin.

Libya’s Noc decided to pre-empt the deal, foregoing the bonus of Cnd $46.7m (amount according to Verenex) it would have been paid if Verenex had been sold to CNPC.

Why? People involved in the deal are not sure. One person on the Libyan side said it was to gain better control of its assets and for the chance to practise at becoming a more able oil company.

But Noc has not yet ponied up the money (Cnd $10 a share) for Verenex – the same price CNPC had offered. Libya’s politicians can’t see why they should pay market price for what is ostensibly their land and its mineral rights, people close to the deal say. That has left Shokri Ghanem, the affable and relatively business-minded head of Noc, having to try to mediate: explaining to his political bosses that messing around with international companies makes you unpopular and could diminish foreigners’ willingness to invest and, on the other side, make clear to Verenex that in many Libyans’ eyes the company never had the rights over the oil in the first place, regardless of what the contract says.

Ghanem has had plenty of practice, last year having successfully negotiated with the big boys (Eni, Total etc) tougher contract terms that extended the foreigners’ contracts in return for for a bigger slice of the profits for Libya.

And Verenex? Despite its fighting words, the company has been able to do little other than warn its shareholders this muddle might take a while to resolve, and to extend for Libya the deadline by which it must pay.

Related links:

Libya wins better terms for oil field contracts (FT, 18/07/09)

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