China Targets Addax, Kosmos in Overseas Asset Grab

China is fueling much of the consolidation within the oil and gas industry, with as much as $12 billion worth of deal currently in the pipeline. The latest company to catch China’s asset-focused eye is Addax Petroleum, a Geneva-based oil and gas explorer, the South China Morning Post reported Monday. Addax has since released a press release confirming “it has held preliminary discussions with third parties expressing an interest in a potential transaction.” The company did not identify the interested companies.

The leading bidder is China Petroleum & Chemical Corp., or Sinopec, which is working on a bid of up to $8 billion, according to South China Morning Post. Other interested bidders include China National Petroleum Corp., and China National Offshore Oil Corp. Both of these state-owned companies are planning bids up to $4 billion for U.S.-based Kosmos Energy.

China’s insatiable thirst for energy, falling crude prices and plunging shares of oil and gas companies has fueled its oil stockpiling efforts and overseas acquisitions. So why Addax and Kosmos?

For one, both are small exploration companies that concentrate most of their operations in West Africa. China has directed much of its attention to areas including Africa, the Middle East and most recently Singapore, where protectionist sentiment isn’t quite so deep.

Addax, while based in Geneva, operates primarily in West Africa — Nigeria, Gabon and Cameroon — and the Kurdistan Region of Iraq.

The South China Morning Post said the Addax’ northern Iraq assets may be problematic for potential bidders. But I disagree. Granted, investing in oilfields in the Kurdish Region of Iraq is risky since the Baghdad government does not recognize the original contracts. But the semi-autonomous KRG and Baghdad have made some progress in their long-standing feud.

The Baghdad government has agreed to allow oil firms developing the Taq Taq oil field and nearby Tawke to pump for crude. Addax and Turkey’s Genel Enerji are partners in the Taq Taq field and Norway’s DNO Internationalis developing the Tawke field.

Other companies are likely bidding for Addax as well. Genel’s recent merger talks with Heritage Oil makes me wonder if Heritage may also bid on Addax. Heritage also has operations in Iraq’s Kurdistan region as well as Uganda. Genel already own 25 percent of Heritage’s Miran oilfield.

There is some uncertainty of how KRG will pay Addax, Genel and DNO. But the Baghdad government needs to boost its oil revenues. Right now the foreign oil firms operating in KRG offer immediate access to those much-needed dollars. 

Interest in Kosmos likely lies with its Ghana oilfields, which has been valued at $3 billion to $6 billion by analysts, the FT reports. Ghana is stable compared to other West African countries, like Nigeria, where a lot of larger oil companies have focused their exploration efforts.

Ghana basin, which already has yielded large discoveries, could prove to hold even more as new seismic and drilling data is released, according to Sanford Bernstein analyst Neil McMahon in the FT.

Kosmos’ partners in its West Cape Three Points Block in Ghana includes Anadarko and Tullow Oil. An acquisition of Kosmos would certainly impact Anadarko and Tullow and as FT notes could open an oil corridor off the west African coast.

We’ll have to wait to see if China manages to scoop up either one of these companies. Regardless, the country is just starting to show its buying power.