June 25 (Bloomberg) -- China Petrochemical Corp., the nation’s second-biggest oil company, will gain reserves in Iraq’s Kurdistan and West Africa upon completing its C$8.3 billion ($7.2 billion) purchase of Addax Petroleum Corp.

Sinopec Group, as Beijing-based China Petrochemical is known, agreed to pay C$52.80 a share in cash for Addax, the Geneva-based company said in a statement yesterday. That’s 47 percent more than Addax’s closing price in Toronto on June 5, the day before the company said it was in takeover talks.

The deal, China’s biggest overseas takeover to date, hands Sinopec Group control of 42.5 million barrels of proven and probable reserves in Iraq’s Kurdish territory, where the start of oil exports earlier this month sparked a wave of takeover interest. China has spent as much as $5.4 billion since December on oil assets in Singapore, Syria and Kazakhstan after crude prices fell from a record and equity markets tumbled.

The Addax buy may “help China achieve national energy security,” said Gordon Kwan, head of regional energy research at Mirae Asset Securities Ltd. in Hong Kong. “It could be a big win for Sinopec’s listed company via potential asset injection owing to its need to beef up the upstream resource base to sustain long term production growth.”

China Petroleum & Chemical Corp., the listed unit of Sinopec Group, rose 0.4 percent to 10.56 yuan in Shanghai. The company’s Hong Kong shares gained 0.4 percent to HK$5.61. The benchmark Hang Seng Index climbed 2.1 percent.

China Petroleum

China’s oil consumption doubled in the last decade, rising to 8 million barrels a day last year from 4.2 million barrels in 1998, according to the BP Statistical Review. The world’s fastest-growing major economy imported 3.6 million barrels of oil a day last year, meeting about 45 percent of its needs.

China Petroleum, Asia’s biggest refiner, imports about 400,000 barrels of oil a day to supply its plants while Addax’s daily production is about 50,000 barrels, Wang Aochao, an analyst at UOB-Kay Hian in Shanghai, said by e-mail.

The Addax transaction surpasses China National Petroleum Corp.’s $4.18 billion takeover of PetroKazakhstan Inc. in 2005 and comes three weeks after Rio Tinto Group scrapped a $19.5 billion proposed investment from Aluminum Corp. of China.

“If it goes through, it seems like a good deal,” said Larry Grace, an independent oil analyst in Hong Kong. “This is all part of the company’s drive to secure more oil reserves abroad.”

Iraqi Oil

The Addax deal is the second this month involving assets in Iraq’s Kurdish territory. Heritage Oil Ltd. agreed to buy Turkey’s Genel Energy International Ltd. for 1.52 billion pounds ($2.52 billion) in stock on June 9, creating the biggest producer in that area.

Addax surged 275 pence, or 12 percent, to a record 2,643 pence in London yesterday following the takeover announcement.

DNO International ASA, the first foreign oil producer in Iraq since 1972, rose by the most in more than a month in Oslo trading following news of the Addax agreement. The shares climbed 0.9 krone, or 13 percent, to 7.67 kroner.

“It wouldn’t be unnatural for DNO, given its position in Iraq, to attract interest from potential buyers,” said Arnstein Wigestrand, an analyst at SEB Enskilda in Oslo. DNO Chief Executive Officer Helge Eide last week declined to say whether DNO had been approached by bidders.

Break-Up Fee

Sinopec Group has until Aug. 24 to receive clearance from the Chinese government to go ahead with the purchase. It will pay a break-up free of C$300 million to Addax if it doesn’t have approval by that date.

Addax’s board recommended shareholders accept the offer. Senior directors have entered into lock-up agreements to sell their 38 percent interest in the company to Sinopec. RBC Capital Markets is acting as financial adviser to Addax.

Founded in 1994, Addax is also one of the largest independent oil producers in West Africa, with 94 wells in Nigeria and 62 in Gabon as of the end of last year.

Addax started exports from the Taq Taq license area in Kurdistan, the producer said on June 1. The crude is being sent by truck to the Khurmala station, then transported by pipeline to the Turkish Mediterranean port of Ceyhan. Exports from DNO International’s Tawke field, another project in the autonomous region, have also commenced.

Taq Taq Field

Production capacity at Taq Taq is about 40,000 barrels a day, and Addax is expanding the facilities to pump as much 70,000 barrels a day. The company and partner Genel Energy expect peak production of 180,000 barrels a day and aim to build a pipeline from the field to the export link, it said.

Sinopec International Petroleum Exploration & Production Corp., a unit of Sinopec Group, said the acquisition of Addax is a “transformational” transaction.

The purchase will help Sinopec Group “achieve its strategic objective to build a stronger presence and operations in West Africa and Iraq, accelerating its international growth strategy as well as optimizing its offshore oil and gas asset portfolio,” the unit said in a statement in state-run China Daily yesterday.

Sinopec Group will tap Addax’s expertise in deepwater exploration, the Chinese company said in a statement on its Web site today. The group said it plans to retain Addax management and staff after the takeover.

Addax holds deepwater exploration licenses in offshore Nigeria and in a joint zone between Nigeria and the Republic of Sao Tome and Principe. Addax plans to start drilling four wells in the fourth quarter of 2009, the company said in a statement in March.

To contact the reporters responsible for this John Duce in Hong Kong at Jduce1@bloomberg.net; Stephen Cunningham at scunningha10@bloomberg.net

Last Updated: June 25, 2009 04:41 EDT