The Chinese Role.

CNPC, China's biggest IOC and with a huge cash pile, does not shy away from risky deals, having bought Verenex Energy of Canada against the will of Libya's state-owned National Oil Corp. Verenex has made ten impressive oil and gas finds in Libya since 2005 and says it will eventually have the potential of producing 400,000 b/d (see omt2LibFieldsJuly13-09). CNPC, developing al-Ahdab field in the south-central province of Waset, is preparing to bid in Iraq's second auction, competing with China's other state-owned IOCs, such as Sinopec and CNOOC. All strongly backed by Beijing, the Chinese IOCs are expected to form the biggest petroleum bloc in Iraq.

CNOOC on June 30 rejected the terms laid down by the Oil Ministry to operate the Missan oilfields at a $2.30/b fee. It sought $21.40/b. Sinopec and CNOOC teamed up with Conocophillips to bid for the Bai Hassan oilfield, but the consortium turned down Iraqi's maximum fee of $4/b, having wanted $26.70/b.

CNOOC Chairman Fu Cehngyu on July 7 was quoted as saying his company was to participate in the second auction. Sinopec recently bought Addax Petroleum and thus has a large exposure in Kurdistan. Its President Wang Tianpu says: "Of course we will pay close attention [to the second round]the central government [in Beijing] has been encouraging us to tap overseas resources".

Beijing's ambitions to expand in the resources sector were underlined on June 25 when Sinopec, a unit of China Petroleum and Chemical Corp, agreed to a C$8.3 bn (US$7.2 bn) take-over of Swiss-based Addax Petroleum of Canada with interests in Africa and the oil frontier of Iraqi Kurdistan. Sinopec, one of China's biggest oil companies, is buying Addax, listed in Toronto and London, in a deal which would be Beijing's largest ever out-bound investment in the oil and gas sector.

Sinopec's Hong Kong share price on June 25 opened 1.9% higher at HK$5.70 before retreating to 0.4% up. Addax, which is active in Nigeria and Gabon, is one of the longest-established players in Kurdistan, operating the Taq Taq oilfield and refinery at the centre of a patchwork of oil concessions. The development of these concessions was until recently stalled by a political dispute between the central government and the KRG.

Addax was one of three companies, including Genel Enerji of Turkey, which in early June began producing the first 100,000 b/d of crude oil. A week later Genel agreed an all-share merger with Heritage Oil of the UK, another operator in Kurdistan, in a deal worth more than $5 bn.

The state-run Korea National Oil Corp (KNOC), which has an EPSA for a block adjacent to Addax's, had tried by failed to buy the Canadian company. It is not clear yet whether Baghdad will accept Sinopec's participation in the second round, in view of its big involvement in Kurdistan. But relations between Baghdad and Beijing have become very strong, with the Chinese government having offered to provide Iraq with soft loans on generous terms. China is fast becoming one of Iraq's top trading partners.

If the multiple acquisition deals under way in Kurdistan succeed, HeritaGE, the proposed name of the combined Heritage Oil and Genel Enerji and Sinopec, will be JV partners to develop Taq Taq oilfield and refinery on a big scale. Sinopec offered to pay C$52.80 per share to acquire Addax, a 16% premium to its closing price on June 23and an almost 50% premium to its price before it announced the talks. Addax was advised by RBC Capital Markets.

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