China’s resources drive continues apace, despite the resounding failure of Chinalco’s bid to acquire a big stake in Rio Tinto. According to weekend reports – initially in the Sunday Times – Chinese state-owned oil group Sinopec is stepping up its race to secure access to global oil reserves with an “audacious” £4.8bn bid for Addax Petroleum, a London-listed group with fields in Iraqi Kurdistan and Nigeria.
Bloomberg reports on Monday that a spokesman for the Hong Kong-listed unit of China Petrochemical Corp, Sinopec’s official name, denied the unit has bid for Addax, though did not rule out the possibility that its state-owned (and unlisted) parent company has made a bid. Needless to say, the Beijing-based parent company has not taken any steps to clarify its position – and Addax isn’t talking either.
Addax, which is listed on the Toronto Stock Exchange and has a market cap of C$6.9bn said on June 9 only that preliminary talks were underway with third parties expressing an interest in a “potential transaction” with the company. The company announced on June 1 it had started crude-oil exports from the Taq Taq license area in the autonomous Kurdish region in northern Iraq.
Sinopec, according to the Times report, is understood to have tabled the indicative offer last week, trumping an earlier bid by the Korean National Oil Corporation. The move highlighted Beijing’s determination to use its cash reserves to seize control of the raw materials it needs to sustain its rapid economic growth, the report added.
The Wall Street Journal adds on Monday that the bid talks also show how surging crude prices are beginning to fuel small-scale M&A deals in the energy sector, amid fears that assets could soon become too expensive if the price of oil continues to climb.
Addax, which has one of only two operational fields in Kurdistan, has seen growing interest from would-be buyers with the completion of an oil-export pipeline from the region and has hired RBC, the Canadian investment bank, to handle the auction, notes the Journal.
The Times sees it as part of a “land grab unfolding in Kurdistan”, noting that until this month, an impasse between the regional government and Baghdad meant companies there had no market for their oil. The pipeline, to the Turkish port of Ceyhan, has increased the appeal of one of the world’s last unexplored oil provinces, which could hold up to 40bn barrels of oil by some estimates.
In recent years, Sinopec has struck various deals in Africa and Asia, but has not been so successful elsewhere. The Addax deal would be a “big win” for Sinopec, which is currently predominantly in downstream refineries and needs to buy a lot more upstream operations to feed those refineries, one analyst told the FT in a report on Monday.
The US blocked an $18.5bn takeover of Unocal, an oil and gas group, by Chinese-owned CNOOC four years ago, and since then there have been a variety of controversial deals – some successful, many not – between Chinese companies and foreign resources companies – culminating last week in the spectacular failure of the deal for Chinalco to acquire a large stake in miner Rio Tinto.
But amid the ruins of the Chinalco-Rio deal, there have been a few modest successes for Bejing, including CNOOC’s landmark deal a few weeks ago with UK oil and gas group BG to sell liquefied natural gas from BG’s planned plant in Australia, opening up a new supply route to Asia; and the deal by Chinese metals group Minmetals to buy most of the assets of Australian group OZ Minerals.
On another front, a successful takeover of Addax for Sinopec would create the second billionaire from companies operating in Kurdistan in as many weeks, notes the Times. If the deal succeeds, Addax boss Jean Claude Gandur – who owns 3.6 per cent directly and controls an investment vehicle with an additional 35 per cent stake – would be the big winner.
Last week, Tony Buckingham, the founder of Heritage Oil, announced a $6bn merger with Turkey’s Genel Enerji in a deal that will leave him with a 16 per cent stake worth more than $1bn in a new FTSE 100 group, adds The Times.
Meanwhile, Sinopec, clearly determined to score at least one win if not more in the region, has also shown a big interest in Iraq in recent months, according to the Journal, sending frequent delegations both to Baghdad and the Kurdish region in search of deals.
Clearly this is a space to watch…
Related links:
Outmanoeuvred – FT
China Petroleum isn’t bidding for Addax, spokesman says – Bloomberg