Sinopec Group Agrees to Buy Addax for $7.3 Billion (Update2)

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By John Duce and Stephen Cunningham

June 24 (Bloomberg) -- China Petrochemical Corp. agreed to buy Addax Petroleum Corp. for C$8.3 billion ($7.3 billion) in the nation’s biggest overseas takeover, gaining oil reserves in Iraq’s Kurdistan and West Africa.

China’s second-largest oil company, known as Sinopec Group, will pay C$52.80 a share in cash, Geneva-based Addax said in a statement today. That’s 47 percent more than Addax’s closing market price in Toronto on June 5, the day before the company said it was in takeover talks.

By buying Addax, Sinopec Group gets 42.5 million barrels of proved and probable reserves in the Kurdish region of Iraq, where the start of oil exports earlier this month sparked a wave of takeover interest. China has spent as much as $5.4 billion since December on oil assets in Singapore, Syria and Kazakhstan after crude fell from a record and equity markets tumbled.

“The offer price is fair given prevailing oil prices and project risks,” Gordon Kwan, head of regional energy research at Mirae Asset Securities Ltd. in Hong Kong, said by e-mail. The transaction would be “China’s single largest oil acquisition” by value, he said.

The deal surpasses China National Petroleum Corp.’s $4.18 billion takeover of PetroKazakhstan Inc. in 2005 and comes three weeks after Rio Tinto Group scrapped a $19.5 billion proposed investment from Aluminum Corp. of China.

The takeover “fits well with the nation’s global energy strategy as the country pushes for diversification of its oil supplies, and increased access to oil in the Middle East and Africa will in no doubt boost its energy security,” said Jiang Xinmin, an energy researcher at the National Development and Reform Commission, China’s top economic planner.

Iraqi Oil

The transaction is the second this month involving assets in Iraq’s Kurdish territory. Heritage Oil Ltd. agreed to buy Turkey’s Genel Energy International Ltd. for 1.52 billion pounds ($2.52 billion) in stock on June 9, creating the biggest producer in that area.

Addax rose as much as 372 pence, or 16 percent, to 2,740 pence in London and traded at 2,700 pence as of 1:33 p.m. local time. The shares are also traded in Toronto. China Petroleum and Chemical Corp., Sinopec Group’s unit, rose 1.1 percent to close at HK$5.59. The announcement came after Hong Kong markets shut.

Addax has started exports from the Taq Taq license area in Kurdistan, the producer said on June 1. The crude is being sent by truck to the Khurmala station, then transported by pipeline to the Turkish Mediterranean port of Ceyhan. Exports from DNO International ASA’s Tawke field, another project in the autonomous region, have also commenced.

Taq Taq

Production capacity at Taq Taq is about 40,000 barrels a day, and Addax is expanding the facilities to pump as much 70,000 barrels a day. The company and its partner Genel Energy expect peak production of 180,000 barrels a day and aim to build a pipeline from the field to the export link, it said.

Sinopec International Petroleum Exploration & Production Corp., a unit of Sinopec Group, said the acquisition of Addax is a “transformational” transaction.

The purchase will help Sinopec Group “achieve its strategic objective to build a stronger presence and operations in West Africa and Iraq, accelerating its international growth strategy as well as optimizing its offshore oil and gas asset portfolio,” the unit said in a statement in state-run China Daily today.

To contact the reporters responsible for this John Duce in Hong Kong at Jduce1@bloomberg.net; Stephen Cunningham at scunningha10@bloomberg.net

Last Updated: June 24, 2009 08:39 EDT