Sinopec acquisition of Addax to strengthen upstream business

25 June 2009 06:52  [Source: ICIS news]

SHANGHAI (ICIS news)--Sinopec Group’s acquisition of Toronto and London-listed Addax Petroleum Corp at a cost of Canadian dollar (C$)8.3bn ($7.2bn) is expected to strengthen the upstream business of the Chinese petrochemical major, analysts said on Thursday.

“Sinopec needs to import large amount of crude oil every year. It is better for the company if it has its own crude supply. Addax is a good oil supplier,” said Yan Beina, an analyst from Shanghai-based Guosen Securities.

“Sinopec’s upstream business is weak compared to its rival PetroChina, so this move could no doubt strengthen its upstream sector capability of exploration and production,” Yan added.

On Wednesday, Sinopec International Petroleum Exploration and Production Corp (SIPC), a wholly-owned subsidiary of the Sinopec Group, agreed to make an offer to acquire all of the outstanding common shares of Addax Petroleum for C$52.80 per share in cash, Addax said in a statement.

Addax Petroleum is one of the largest independent oil producers in West Africa and has increased its crude oil production significantly in recent years.

The deal is subject to approval from Addax shareholders and the Chinese government. Addax said on its website the offer "will be open for acceptance for a period of not less than 35 days."

“The purchase is meaningful and valuable based on the strategic consideration from the country and the company, so the government will definitely support it,” Yan said.

Wang Aochao, an analyst from UOB Kai Hian, said it was good for Sinopec to secure some oil supply overseas. "Currently, Sinopec imports approximately 400,000 bbls of oil every day to supply its refineries. Addax's 50,000 bbl of daily production would definitely help," he said in an e-mail to ICIS news.

“Secondly, Sinopec is making efforts to improve its upstream capability. Acquisition is by far the most efficient way. Especially [since] the acquisition price is reasonable,” Wang added.

A few days ago, state-owned oil and gas giant PetroChina completed a $1.02bn (€0.73bn) acquisition of a 45.51% stake in Singapore Petroleum Corp (SPC) and would buy the rest at Singapore dollar (S$)6.25 ($4.28) a share in two to three weeks.

“China’s large oil companies will continue to seek suitable targets to explore its overseas market, but it is not easy to find a suitable target company with rising crude oil prices during these days,” Yan  from Guosen Securities said.

Sinopec also bought Canadian Tanganyika Oil Co Ltd for C$2.07bn or C$31.50 a share under a negotiated sale as part of the group’s strategy to expand its overseas operations in December last year.

($1 = C$1.15/ $1 = S$1.46/ $1 = €0.72)

Judith Wang contributed to this article

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