Verenex Energy Inc, a Canadian oil producer focused on Libya, said on Friday it had entered into an agreement to be bought by a Libyan sovereign wealth fund, after the collapse of a deal reached with China.

The Libyan Investment Authority (LIA) has agreed to pay C$7.09 a share for all of Verenex's outstanding shares, the company said. The offer is well below China National Petroleum Corp's C$10-a-share deal.

In total, Libya's offer values Verenex at roughly C$316 million compared with about C$460 million agreed by China National Petroleum Corp.

China made its offer in February, but dropped out this month after Libya's government refused to approve the sale.

Under the agreement with Libya, Verenex said it can distribute any working capital to shareholders at the time the sale closes. The company said it expected the amount to be nominal.

The LIA offer has received all necessary Libyan government approvals, Verenex said in a statement. A definitive agreement is expected to be signed by Oct. 20.

The Verenex board of directors, after consulting with its financial and legal advisors, has unanimously determined that the proposed transaction represents the best alternative reasonably available to Verenex and its shareholders, the company said.

Verenex officials were not immediately available for further comment.

The Libyan government established the LIA sovereign wealth fund in 2006 to manage Libya's surplus oil revenues.

Libya has Africa's largest proven oil reserves and in the past decade foreign investors have been enthusiastic to tap into the Libyan market as international sanctions were lifted.

But initial enthusiasm has been tempered by modest results from exploration wells and concerns about the risks of dealing with Libya's government.

(Reporting by Lilla Zuill and Sinead Carew, Editing by Ron Popeski)