Kate Mackenzie Sinopec pursues Addax, despite the political risk in Iraq

Sinopec has come through with the rumoured offer for Addax, a London- and Toronto-listed small oil company that has operations in Kurdistan and Africa.

June 24 (Reuters) – China’s Sinopec Group agreed to buy
Addax Petroleum Corp <AXC.TO> for about C$8.27 billion ($7.24
billion) in a bid to gain access to the Swiss oil and gas
explorer’s high potential oil blocks in West Africa and the Taq
Taq field in Iraq.
The offer of C$52.80 per share from Sinopec International
Petroleum Exploration and Production Corp, which was in a race
with Korea National Oil Co (KNOC) for the bid, is about 16
percent higher than Addax’s Tuesday closing price.

The board of Addax has recommended the offer to its shareholders.

Clearly China has decided to take the risk of getting offside with the Iraqi government by expanding its operations in semi-autonomous Kurdistan, where Addax has a large stake in Taq Taq. Agreements signed with the Kurdistan Regional Authority however are a source of contention with the central Iraqi administration.

Korean National Oil Company, which was also considering a bid for Addax, has seen its activities in Kurdistan create a hurdle to striking deals elsewhere in Iraq. Iraq has the world’s third-largest oil reserves and Sinopec is expected to be among dozens of companies bidding to operate in Iraqi fields at an auction scheduled for next week. 

Sinopec has a couple of reasons to feel a little more confident. Iraqi oil minister Hussein Shahristani, who takes a strong line on Kurdistan, is under pressure from his own government. And the risk of doing business in Iraq has long been a limiting factor on foreign investment in the country’s rich oil reserves. China, of course, has been more willing to invest in large foreign resources, and is less bothered by security concerns than other international oil companies.

Related links:

Iraq: Enthusiasm doesn’t guarantee a good party (FT Energy Source, 23/06/09)
South Korea group considers Addax tie-up (FT, 08/06/09)
Bid decision for Addax chief (FT, 15/06/09)
Shell eyes Chinese links in Iraq (FT, 14/04/09)