Kurdish oil dealings threaten Addax assets

Iraq's oil ministry may blacklist China's oil behemoth, Sinopec, because its new subsidiary, the Geneva-based Addax, has signed independent oil deals with the Kurdish government. Kurdistan is a key market for Addax, but Baghdad refuses to deal with companies which bypass central government for regional oil contracts. After Sinopec makes its final purchase of Addax shares this week, deals done with the Kurds may leave some of the Swiss group's assets vulnerable. The Iraqi government said on Monday that it will bar Sinopec from competing in a second bidding round for oilfield tenders if it confirms that the Chinese giant has purchased Swiss oil explorer Addax Petroleum.
Deputy Oil Minister, Abdul Karim Louaibi, told Reuters in Istanbul that the ministry had sent Sinopec a letter inquiring about Addax’s dealings with the Kurdish regional government. The central government launched auctions in June and a decision on the current round of tendering is expected in October or November. 
Most of Addax Petroleum’s assets are in Nigeria and Gabon, but 8 per cent of its income comes from Kurdistan oil fields which harbour considerable potential for further growth. When Addax began exporting from the Kurdish Taq Taq licencing region in June, CEO Jean-Claude Gandur said the area was “poised to be a sizeable contributor to production and reserve growth for Addax Petroleum.” 
Addax received a letter from Kurdish officials in July confirming their satisfaction with deals underway. But Louaibi told Reuters “the Oil Ministry is committed to not dealing with any oil company that signs oil contracts (with the Kurdish regional government) without the approval of the central government and Iraqi oil ministry.”
Iraq’s central government is at loggerheads with the Kurds over a range of land, power and oil issues with no sign of the conflict abating.
One industry insider who works on Kurdish oil projects told Swisster that “politics were very interesting and oil-based at the moment around Kirkuk. Ultimately it will descend in to civil war very quickly or money will talk.”
He also speculated that the Chinese government could try to force a political deal to ensure Sinopec stays involved with central Iraqi contracts. But Addax may have to divest its Kurdish assets to keep Sinopec in the game. 
Despite this possible scenario, a company spokesperson told Swisster this week that “Addax Petroleum does not plan to sell any of its current assets.” However, this does not rule out the possibility that Sinopec Group, as the new owner of Addax, may try to impose its will and engineer an about turn. 
Chinese refiner Sinopec announced in June that it had agreed to buy Addax for around 7 billion US dollars, in the country’s biggest foreign corporate takeover. The deadline for the purchase of remaining shares was recently extended to Thursday August 27 and the situation remains delicately poised given that the sale has yet to reach fruition.
Sinopec has yet to formally comment on the issue. According to the China Business News, a Sinopec official said commercial operations are unrelated to domestic Iraqi political conflicts. But Addax investors will be following events closely, as the political risk of operating in Iraq leaves assets in Kurdistan increasingly vulnerable. Addax is listed on the London and Toronto stock exchanges and the share price has more than trebled since December 2008.
Iraq has 115 billion barrels of proven oil reserves. Less than 10 per cent is in the Kurdish region. 
 

Iraq's oil ministry may blacklist China's oil behemoth, Sinopec, because its new subsidiary, the Geneva-based Addax, has signed independent oil deals with the Kurdish government. Kurdistan is a key market for Addax, but Baghdad refuses to deal with companies which bypass central government for regional oil contracts. After Sinopec makes its final purchase of Addax shares this week, deals done with the Kurds may leave some of the Swiss group's assets vulnerable. The Iraqi government said on Monday that it will bar Sinopec from competing in a second bidding round for oilfield tenders if it confirms that the Chinese giant has purchased Swiss oil explorer Addax Petroleum.
Deputy Oil Minister, Abdul Karim Louaibi, told Reuters in Istanbul that the ministry had sent Sinopec a letter inquiring about Addax’s dealings with the Kurdish regional government. The central government launched auctions in June and a decision on the current round of tendering is expected in October or November. 
Most of Addax Petroleum’s assets are in Nigeria and Gabon, but 8 per cent of its income comes from Kurdistan oil fields which harbour considerable potential for further growth. When Addax began exporting from the Kurdish Taq Taq licencing region in June, CEO Jean-Claude Gandur said the area was “poised to be a sizeable contributor to production and reserve growth for Addax Petroleum.” 
Addax received a letter from Kurdish officials in July confirming their satisfaction with deals underway. But Louaibi told Reuters “the Oil Ministry is committed to not dealing with any oil company that signs oil contracts (with the Kurdish regional government) without the approval of the central government and Iraqi oil ministry.”
Iraq’s central government is at loggerheads with the Kurds over a range of land, power and oil issues with no sign of the conflict abating.
One industry insider who works on Kurdish oil projects told Swisster that “politics were very interesting and oil-based at the moment around Kirkuk. Ultimately it will descend in to civil war very quickly or money will talk.”
He also speculated that the Chinese government could try to force a political deal to ensure Sinopec stays involved with central Iraqi contracts. But Addax may have to divest its Kurdish assets to keep Sinopec in the game. 
Despite this possible scenario, a company spokesperson told Swisster this week that “Addax Petroleum does not plan to sell any of its current assets.” However, this does not rule out the possibility that Sinopec Group, as the new owner of Addax, may try to impose its will and engineer an about turn. 
Chinese refiner Sinopec announced in June that it had agreed to buy Addax for around 7 billion US dollars, in the country’s biggest foreign corporate takeover. The deadline for the purchase of remaining shares was recently extended to Thursday August 27 and the situation remains delicately poised given that the sale has yet to reach fruition.
Sinopec has yet to formally comment on the issue. According to the China Business News, a Sinopec official said commercial operations are unrelated to domestic Iraqi political conflicts. But Addax investors will be following events closely, as the political risk of operating in Iraq leaves assets in Kurdistan increasingly vulnerable. Addax is listed on the London and Toronto stock exchanges and the share price has more than trebled since December 2008.
Iraq has 115 billion barrels of proven oil reserves. Less than 10 per cent is in the Kurdish region.