Addax Goes to the Belly of the Beast - Africa’s premier report on the oil, gas and energy landscape.

Addax Goes to the Belly of the Beast

By Fred Akanni, Editor-in-Chief

With $1.6 billion in the bag, Addax is transiting from a production company to an Exploration and Production company. The Swiss operator is expanding its focus from the Gulf of Guinea to the Caspian Sea. Now it describes itself in literatures and documentations as an international oil and gas exploration and production (E&P) company focused on Africa and the Middle East.”

The mantra has been; first develop what assets you have, get a handle on the portfolio, build a war chest and then take more risk.

When Jim Pearce, the company’s Chief Operating Officer, addressed an audience of Nigerian petroleum geologists in Abuja, in November 2005, he came across as the spokesman of an operator which had built its portfolio by squeezing production from assets it acquired in 1998, from 8,000BOPD to 86,000BOPD, with every drop of oil produced in Nigeria.

When he returned to the country, to address a similar gathering three years later, production in Nigeria alone had reached 110,000BOPD.

The company had also added producing properties in Gabon, outputting 30,000BOPD by the end of 2007. Addax had become a deepwater exploration company by acquiring the Oil Prospecting Lease(OPL 291), considered a very prospective property in Nigeria, in 2006. By getting out of Nigeria into Gabon, Cameroon and SaoTome et Principe, Addax could by now claim it was not limited to one country, but was focused on Africa as a whole.

Mr. Pearce’s talk, delivered at a lunch hour session at the Nigerian Centre For Petroleum Information(CPI), indicated as follows: With fortune made on the continent via record oil prices and cash generated by massive sale of shares, (through which it amassed some $400Million), the Calgary listed operator has found the confidence to consider itself a global player. And it is not afraid to go to the belly of the beast: to the troubled, secessionist prone Kurdistan, in the north of war torn Iraq.

Addax formed a 45:55 joint venture with Genel Energie of Turkey to implement a 25-year production sharing agreement (PSA) it signed with the Kurdistan Regional Government in early 2004. The JV, called Taq Taq Operating Company (TTOPCO), expects to be the first international firm to produce crude oil in Kurdistan.

In the first quarter of 2008, Addax signed an agreement with the Kurdistan Regional Government (“KRG”) amending the production sharing contract to sychronize the government back-in rights at up to 20 per cent and reduce the maximum Cost Oil recoverable in a given year, which is partially offset by an effective increase through an interim period that accelerates the recovery of the initial capital investment by the Contractor. It’s worth noting that while there’s so much reference to Kurdistan as a region in Iraq, there’s no talk about any dealing with the state of Iraq itself.

In the same week that Mr. Pearce gave his talk in Lagos, Addax announced the broadening of its imprint in Kurdistan; it had acquired a 33.33 per cent interest in the  Sangaw North Production Sharing Contract (“PSC”), operated by Sterling Energy.  The licence area is located approximately 80 kilometers southeast of the Corporation’s Taq Taq field.

This clearly is empire building of sorts, and it reminds commodity market watchers of a

certain period in the life of Jean Claude Gandur, Addax’s enterprising founder, President

and CEO. In the late 1990s, just as he was taking his company to Nigeria, Gandur was

fighting a bruising battle to gain control of Ashanti Goldfields, the gold mining company that was Ghana’s prime asset.  He lost to that company’s equally charismatic CEO, Sam Jonah.  Ashanti Goldfields has since been swallowed South Africa’s Anglogold, and Mr. Gandur has moved on to equally robust “mining” company.

Addax’s decision to go further in Kurdistan can be clearly seen from the perspective of the encouraging producibility of the wells it has tested in the Taq Taq field. In March 2007, the TT-05 in flow tested at an aggregate rate of 26,550 BOPD. Three months later, the TT-06 flow tested at an aggregate rate of 18,900 BOPD. But 2007 was not just about Taq Taq. The year may be recorded as the year of high risk, high reward. That was when Addax went on exploratory campaign in those assets in Nigeria that didn’t feature highly in its initial development campaign. It drilled a successful exploration well in each of the Udele West and Ofrima North fields in 0ML137 offshore Nigeria and booked its first reserves on the license area, which itself accounts for the largest surface area of any of Addax Petroleum’s Nigerian assets. As at December 31, 2007, estimated gross working interest proved plus probable reserves were 17.1 MMBBO.

With this string of discoveries in its portfolio, Addax, agreed to take over ExxonMobil’s 40% working interest in the Nigeria/STP Joint Development Zone (JDZ) Block 1. In that same third quarter of 2007, the company increased its Gabonese production more than three-fold to an excess of 30,000 BOPD, one year after acquisition of the operations of Pan-Ocean Energy Corporation Limited. By September 2007, the company exceeded 140,000 BOPD for the first time in its history.




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