Sinopec, the Chinese state oil company, is in talks to acquire Addax Petroleum, a small explorer with oilfields in Iraqi Kurdistan and West Africa, according to a person familiar with the matter.
The talks show how surging crude prices are beginning to fuel small-scale mergers and acquisitions in the energy sector, amid fears that assets could soon become too expensive if the price of oil continues to climb.
Addax, which has a market value of 6.89 billion Canadian dollars (US$6.25 billion), is in "multiple discussions" with a number of companies, including Sinopec and the Korean National Oil Co., or KNOC, the person familiar with the matter said. But Sinopec, or China Petroleum & Chemical Corp., is in the strongest position, he said.
A spokesman for Addax, based in Switzerland and listed in London and Toronto, declined to comment. Sinopec couldn't be reached for comment.
Much of the recent activity in oil mergers and acquisitions has been focused on the autonomous Kurdish region of northern Iraq. The area's appeal has risen sharply since the beginning of this month, when authorities in Baghdad appeared to strike a deal with the Kurdish Regional Government allowing foreign companies developing oilfields in the north to export their crude directly to international markets.
Prior to that, the companies could only supply the local Kurdish market.
Last week, U.K.-listed Heritage Oil said it was merging with Turkey's Genel Energy AS to create a $5.5 billion company concentrated on Iraqi Kurdistan. Also last week, Addax said it had received a takeover approach. Addax, which entered Kurdistan in 2005, is developing the Taq Taq field about 85 kilometers southeast of Erbil.
The field produces 40,000 barrels a day, though peak production is envisaged at 180,000 barrels a day. Since June 1, Addax has been able to truck Taq Taq's oil to the Iraq-Turkey pipeline, which pumps it to the Mediterranean port of Ceyhan.
Analysts say Sinopec, which has a mandate to scour the globe for energy resources, has shown a big interest in Iraq in recent months, sending frequent delegations both to Baghdad and the Kurdish region in search of deals.
But so far Sinopec has little to show for its efforts. The Iraqi government has been reluctant to sign big deals with international oil companies, and is so far offering them only technical service contracts, which give them no equity in the oil in the ground.
Sinopec may have decided that [the Addax deal] is their best entree into Iraq, said one oil executive with interests in Iraqi Kurdistan.
Still, any deal with Addax could be tricky for Sinopec. The Iraqi oil minister, Hussein Shahristani, has declared all Kurdish oil contracts illegal, and Sinopec could jeopardize its relationship with Baghdad by acquiring Addax.