Sunday, June 14, 2009

No Bid From CNOOC On Addax, But It's A Complex Game

Despite an enormous amount of published specualtion, Sinopec to date has made no offer for Addax, according to late reports Sunday night from Bloomberg News. That development will probably trigger a sell-off Monday morning, following a 10% share-price decline on Friday. The backtracking should not go very deep, hpowever, and we would tend to believe that with drilling just months away, it may not drop below $0.50 on this latest retrenchment.

Sinopec is obviously wary about all the unknowns involved in ther Addax deal, including the largest one of all - how much oil is in Blocks 2 and 4, the principal assets of Addax in the Gulf of Guinea Joint Development Zone. However, if CNOOC-Sinopec truly wants to be well-placed in the event the most prospective Blocks are sitting on an elephant-size field, it can't delay too long without riskling a re-entry by Chevron and ExxonMobil, both of who would be likely bidders at a lower share price.

Chevron, in what may be one of the best poker bluffs of all time, has indicated it will not be drilling any longer on Block 1 because what was first reported in the Wall Street Journal as a billion-dollar findwas not "commercially viable." But it may be that Chevron hoped to bring down the price for Blocks 2 and 4, having contemplated a check-and-raise strategy all along.

In that circumstance, the American oil giant would end up with all the big pieces - the whole pot really - and then resume its work on Block 1 as well. It's unclear whether the JDZ would go along with developments like those, though.

Frankly, we would also not put it past China to have already used some advance technology to do its own independent mapping of the JDZ via a submarine stealthily introduced into the Gulf. If Sinopec has decided the Blocks were oversold by Nigeria, they may want a bargain-basement price. Of course, Chevron might have asked the U.S. Navy for the same kind of clandestine help. It could have been the secret part of the U.S. Navy visit to the region more than a year ago, during Dick Cheney's secretive reign.

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