Half a month earlier, Su Shulin, Chairman of China Petroleum and Chemical Corp. (Sinopec, 600028.SH，00386.HK，SNP.NYSE), said the company will speed up its overseas merger plans. Now the company has a target in sight.
Sinopec, Asia's largest oil refiner, is in talks to buy Canada's Addax Petroleum Corp. (Addax), a company which focuses on upstream activities, an official with Sinopec told China Business News Monday. No agreement has been reached so far.
Media reports say the deal is expected to be worth 8 billion US dollars, but sources close to the deal said the two companies have not confirmed the price.
China National Petroleum Corp. and China National Offshore Oil Corp. are also reportedly interested in the Canadian oil producer. However, the two companies declined to make comments yesterday.
February media reports also said that a Japanese company and India's Oil and Natural Gas Corp. are also mulling a takeover bid for Addax.
Toronto-London-listed Addax has its major assets in Africa and the Middle East region. Most of the company's assets are based in Africa's Nigeria, Gabon, and Cameroon. It has 11 solely, and jointly-invested projects in Nigeria. Among Addax's four joint-investment projects in Nigeria-Sao Tome Joint Development Zone, an oil block covering an area of 24,500 acres?is?in cooperation with Sinopec.?Addax has a 14.33 percent stake in the project and Sinopec is in charge of the project's operations.
In Iraq, the company has oil resources in two blocks with a combined area of 138, 200 acres.
Addax reported an annual income of 3.762 billion US dollars last year with a net profit of 784 million US dollars. Current debt totals 2.865 billion US dollars. As a result of falling crude prices, the company's net profit margin stood only at 1.01 percent in the first quarter, compared with the 20.84 percent for last year.
The company decided at the end of last year to invest 1.6 billion US dollars this year to increase its crude output. Current annual output is 6.82 million tons, an 8.4 percent increase from that in 2007.
Constant merger speculations have pushed up Addax's share price from 24 Canadian dollars per piece (21 USD) in February to 36 Canadian dollars (32 USD) on June 5. Its current market capitalization amounts to 5.637 billion Canadian dollars (5.044 billion USD).
If the Addax takeover is approved, the 8 billion US dollar merger price will set a record for Sinopec's overseas mergers.
This year Sinopec has been reportedly in talks for purchases of overseas assets, including Russian-focused firm Urals Energy and Spanish oil giant Repsol.
By now, the company only reached an agreement to buy a 10% stake in Canada's Northern Lights oil sands project from Total with 150 million Canadian dollars (134 million USD).
Rui Dingkun, a researcher with China Jianyin Investment Securities, said: Sinopec's acquisition of a company engaged in upstream oil activities will prove to be worthwhile in the long run.
"Sinopec processes 169 million tons of crude oil annually but its own crude output is only 40 million tons. Increased upstream resources will increase Sinopec's corporate evaluation," said Rui. "Sinopec now imports 73 percent of its crude oil, susceptible to crude price rises. Its upstream and downstream business ratio stands at 1:4, compared with other global companies'1:2. This increases the company's operating risks."
Chinese story link: http://www.china-cbn.com/s/n/000004/20090609/020000102552.shtml
(China.org.cn by Yuan Fang June 9, 2009)
