Asia's largest crude refiner, China's state-owned Sinopec hopes to make its largest overseas acquisition by buying Canadian oil driller Addax Petroleum for $7.2 billion.

China Petrochemical Corporation, also known as Sinopec Group has offered C$52.80 a share in cash, which is a 47 per cent premium to the closing price of Addax shares on 5 June, the day prior to Addax Petroleum's public announcement that it was in preliminary discussions with parties regarding a potential transaction. (See: Sinopec in talks to acquire Addax Petroleum for $8 billion)

Chief executive Jean Claude Gandur of Addax, who, personally and through his holding company, Addax & Oryx Group, holds 38 per cent of Addax Petroleum stock, has also offered his stake, through a lock-up agreement.

The Geneva-based oil and gas producer, Addax is one of the largest independent oil producers in West Africa with a number of producing properties in Nigeria and Gabon, exploration and development properties and new venture opportunities in West Africa and the Kurdistan Region of Iraq.

Nearly 75 per cent of Addax's output comes from Nigeria and Sinopec has jointly undertaken two deep-water oil explorations in the Gulf of Guinea with Addax.

Addax produces about 140,000 barrels of oil a day, with most of it coming from West Africa. It also has a 30-per cent interest in the Taq Taq field and a 26.67-interest in the Sangaw North PSC in the Kurdistan region of Northern Iraq.

Addax, which has dual listings on the London and Toronto exchanges, has been a target for acquisition for some time.

Earlier,  China's third largest oil company, CNOOC, Japan's Mitsubishi, India's Oil & Natural Gas Corporation, and Korea National Oil Corporation were being linked as potentiasl acquirers for Addax.

According to the Canadian newspaper, Globe Investor, there were other bidders, whose identities Addax has not revealed, but the high price that Sinopec has offered to pay for Addax, suggests that Sinopec would outbid other Asian rivals, which according to the paper also include and Reliance Industries Ltd, apart from ONGC and Korea National Oil.

Addax said that Sinopec has agreed to pay a break-up fee of C$300 million in the event that all approvals required to be obtained by Sinopec from the Chinese government have not been obtained by August 24, 2009.

As oil prices started declining from a peak of $147 a barrel in July last year, Sinopec, which supplies more than 40 per cent of China's need, had been making losses due to a surplus inventory of crude, valued at around $23.440 billion as of end September, when its oil import prices werre considerably higher than the current prevailing prices.

Sinopec, whose margins in refining crude is among the highest in the world, lost nearly $17 billion in its refining business, mainly because of the price ceiling that the Chinese government has put on the sale of petroleum products within the country.

China, which is currently the third-biggest importer of oil after it replaced Japan as the second-largest oil consumer in 2003, needs secure energy assets to sustain rapid economic development in the future.

Since 1993, China has become an oil importing country and the decreasing domestic oil production has since driven the three big state-owned oil companies into acquiring assets overseas.

China had said in February that it would use its huge foreign exchange reserves to create a fund for its state-owned oil companies for overseas energy exploration and acquisitions. (See: China to use forex reserves to acquire energy assets)

In 2007, China produced 3.74 million barrels of crude oil per day while it imported 3.26 million barrels of oil, 12.3 per cent higher than in 2006. While domestic production remains flat, fast growth in imports increased China's dependence on imported crude oil from 19.3 per cent in 1999 to 47.1 per cent in 2007.

Currently, CNPC is China's biggest oil producer and the Sinopec Group is China's largest refiner. CNPC accounts for more than 65 per cent of the total crude oil production.