ERHC Energy Inc (ERHE)

[RUBY1100]

Chinese firm to start crude exploration in JDZ


June 25, 2009 12:25AMT
http://www.234next.com/csp/cms/sites/Next/Money/Business/5430602-147/story.csp


By Clara Nwachukwu with Agency reports

China Petrochemical Corporation (SINOPEC) will drill its first exploration well in the Nigeria-Sao Tome and Principe Joint Development Zone (JDZ) in July.

The Chinese firm will start the oil exploration after some delay caused by the shortage of deepwater rigs, competent industry watchers told the News Agency of Nigeria (NAN) in Abuja on Wednesday.

Nigeria and the two archipelago islands of Sao Tome and Principe have a treaty to jointly manage the resources of their common maritime boundary in the ratio of 60 percent to 40 percent respectively.

Under the joint development agreement, both countries would ensure the orderly exploitation of the hydrocarbon and non-hydrocarbon resources in the JDZ.

Some officials familiar with SINOPEC's activities said the exploration was in line with efforts to speed up exploration in oil Block 2 in the JDZ, as the Chinese firm seeks to take over Addax Petroleum Ltd., one of its partners in the JDZ.

JDZ oil blocks

The 692 sq. km. Block 2 is linked to many partners including SINOPEC, which has a majority stake of 28.67%, ERHC (22%), Addax (14.33%), ONGC Videsh (13.5%), Equator (9%), MoMo Deepwater, JDZ Limited and Foby Engineering (each with 5%), and A & Hartman (with 2.5%).

Apart from having a 14.33 percent working interest in Block 2, Addax Petroleum is also the operator of Block 4 with a 45.5 percent interest as well as 40 percent and 15 percent interests in Blocks 1 and 3 respectively, according to the company's 2008 Annual Report.

"The Transocean SEDCO-702 deepwater rig is due to arrive at Block 2 around July 1 and drilling will start immediately afterwards," NAN quoted an official with the JDZ.

"SINOPEC secured the production and sharing contract on the block in 2006, but it has not been able to start drilling due to a shortage of deepwater rigs," a SINOPEC official and the JDZ official said.

The two officials, who preferred anonymity, declined to speculate on the SINOPEC-operated block's potential reserves, but industry reports point to a pre-drill resource estimate of about 275 million barrels.

There have been varied reports on the Addax-SINOPEC deal, but nothing has been concluded.


SINOPEC offer

Initial reports on the buyout had earlier quoted the Chinese firm denying making an offer of $8bn for Addax' assets in Nigeria and the Middle East.

But Bloomberg News reported on Wednesday that China Petrochemical Corp. has agreed to buy Addax Petroleum Corp. for C$8.3 billion ($7.3 billion) in the nation's biggest overseas takeover, gaining oil reserves in Iraq's Kurdistan and West Africa.

The report quoting an Addax statement on Wednesday also said that SINOPEC, China's second-largest oil company, will pay C$52.80 a share in cash, which is 47 percent more than Addax's closing market price in Toronto on June 5, the day before the company said it was in takeover talks.

It further said that parts of the deal would see the SINOPEC Group getting 42.5 million barrels of proved and probable reserves in the Kurdish region of Iraq, 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 the price of crude fell from a record high and equity markets tumbled.

"The offer price is fair given prevailing oil prices and project risks," Gordon Kwan, head of Regional Energy Research at Mirae Asset Securities Ltd. Hong Kong, said by email. The transaction would be "China's single largest oil acquisition" by value, he said.

The deal surpasses China National Petroleum Corporation'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 Corporation of China.

The takeover "fits well with the nation's global energy strategy as the country pushes for diversification of its oil supplies, and increased access to oil in the Middle East and Africa will no doubt boost its energy security," said Jiang Xinmin, an energy researcher at the National Development and Reform Commission, China's top economic planner.

NAN reports that SINOPEC's executives might have travelled to London last week to meet with Addax Petroleum to discuss the takeover bid.

SINOPEC said the acquisition of Addax is a "transformational transaction," as it would help it to "achieve its strategic objective to build a stronger presence and operations in West Africa and Iraq, accelerating its international growth strategy as well as optimising its offshore oil and gas asset portfolio," the unit said in a statement in state-run China Daily on Wednesday