In February 2006, when Geneva-based Addax Petroleum Corp. announced its initial public offering on the Toronto Stock Exchange, the company was producing 74,450 barrels per day. In May of this year, with production up to some 116,000 barrels per day, Addax Petroleum began a secondary listing on the London Stock Exchange. Yet, the company, now with a C$6-billion market cap, still has no plans to trade on an American exchange.

"At the time we wanted to go public, we only saw two exchanges that would work for us in terms of exchanges that are good for oil and gas," says Michael Ebsary, chief financial officer, "and those were the London and Toronto markets." The IPO was led by RBC Capital Markets and Merrill Lynch Canada Inc. as joint book-runners.

Addax Petroleum sold some 21 million shares at C$19.50 each to raise C$409.5 million. President and chief executive Jean Claude Gandur said, "There has been a great deal of interest from investors...with the offering being favorably received in both North America and Europe."

Research analysts at Merrill Lynch state in their most recent Addax Petroleum report, "Notwithstanding its obvious leverage to oil prices, from where we stand, 2006 was a successful operating and financial year. Year-over-year, production volumes were up 38%, proved plus probable reserves were up 80%, earnings per share increased 21%, and discretionary cash flow per share increased 92%."

Martin Molyneaux, managing director of institutional research, FirstEnergy Capital, says of Addax Petroleum and its CEO, "This company and Jean Claude Gandur, who heads it up, have an amazing knack for sniffing out opportunities and building relationships. Gandur likes to go off the beaten path. He bought into Nigeria when everyone else was trying to get out. He's a contrarian, and that works for him."

Why did Addax Petroleum list on the Canadian exchange first?

Ebsary says, "First we ruled out the States because we weren't big enough at the time, and also because of U.S. issues and regulations. We listed on the Canadian before London because our parent company, the Addax & Oryx Group, which owned us 100% then, and owns 35% now, has holdings in the mining industry and had listed a couple of its companies in Toronto.

"Those IPOs were very successful on that exchange. Both Addax Petroleum and its parent have good names in Toronto, and we know the financial community there, so we did a mini road show back then and tested both Toronto and London markets. We felt we had more positive reception in Canada, rather than London. We now have strong interest from European investors as well."

With its secondary listing on the London exchange, Addax has electronically tradable shares that move seamlessly between Toronto and London. Also, as it expanded its exploration focus, the London listing again proved to be more advantageous than a listing in New York.

"The London market seems to value exploration assets much more than the American market, which is driven more by cash flow," says Ebsary. "We have no plans to be listed on an American exchange."

Given its listings in Toronto and London, why is the company based in Geneva? "Our parent company, Addax & Oryx Group, is basically a trading company. Trading is big business in Geneva. Many big trading companies reside or have subsidiaries here, so that's where the owners started building the business."

Addax Petroleum is now one of the largest independent oil and gas companies listed on the London exchange, as measured by market cap, production and reserves.



West Africa

Since its founding in 1994, Addax Petroleum has rapidly grown to become one of the largest independent oil producers in one of the most prolific oil and gas regions in the world-West Africa. It has increased its average oil production from 8,800 barrels per day in 1998 to more than 120,000 today.

Addax's strategy is to acquire underdeveloped properties in established basins and increase production by using the most advanced and proven technologies.

"Our main holdings, in terms of production, are in Nigeria. We have four blocks that we own 100% and we've had them since 1998. They produce about 110,000 barrels of oil per day," says Ebsary. The holdings include onshore block OML 124 and offshore OML 123, 126 and 137.

In July, Addax found oil and gas in the Ofrima North structure and gas in the Udele West Structure of OML 137. The Ofrima-2 exploration well discovered 140 feet of oil-bearing interval at about 7,000 feet subsea. It is a light, 39-degree-API crude, similar to that produced from Addax's Okwori and Nda fields in OML 126. The well also encountered three gas-bearing intervals.

The Udele-2 exploration well discovered seven gas-bearing intervals at an aggregate 542 feet, at depths ranging from 2,700 to 5,000 feet subsea (depth of reservoir).

In 2004, Addax Petroleum entered Gabon by acquiring a 42.5% interest in the Kairsenny Field and in 2006 acquiring two subsidiaries of PanOcean Energy Corp. Ltd. for C$1.6 billion in cash and assumed net debt of C$30 million. The subsidiaries were PanAfrican Energy Corp. (Mauritius) Ltd., which owned and operated PanOcean oil E&P and marketing in Gabon, and PanOcean Energy UK Ltd., which provided management and operational services to PanOcean. These two subsidiaries represented substantially all of the operations of PanOcean.

"Last year, when we purchased PanOcean, we acquired a nice set of assets," says Ebsary. "Those assets can now produce about 30,000 barrels of oil per day, largely out of three onshore blocks, which is a threefold increase since the acquisition."

The assets consist of the operated, onshore Maghena, Panthere NZE and Remboue license areas containing the producing Tsiengui, Obangue and Remboue oil fields and the Autour oil discovery. The assets also include the nonoperated onshore Awoun license area containing the Koula oilfield development and the Damier oil discovery, and the nonoperated offshore Etame Marin license area, which contains the Etame, South Tchibala/Avouma and Ebouri oil fields.

Altogether, Addax had gross-working-interest proved plus probable reserves of some 98.2 million barrels of oil, as of year-end 2006.



Kurdistan

"We have a 45% stake in a joint-venture appraisal and development project, northwest of Kirkuk, in the Kurdistan region of northern Iraq. So that's a field we're looking to putting into development, albeit there are a lot of issues on the political side."

Recent reports are that Iraq's oil minister claims oil and gas deals with Kurdistan since February 2007 are illegal. However, Addax's farm-in agreement is from 2005 with its Turkish joint-venture partner, Genel Enerji AS, (45% Addax, 55% Genel Enerji) that formed Taq Taq Operating Co.

"We've already had the field tested with a number of wells and they've come up with average flow rates of around 30,000 barrels of oil per day."

The first two appraisal wells, TT 04 and TT 05, tested recorded flows of 29,790 barrels and 26,550 barrels per day, respectively. TT 06 flowed 18,900 barrels per day.

Its latest well, TT 07, tested three discrete reservoir intervals with a cumulative flow rate of 37,560 barrels per day. The joint venture plans to drill another two wells, TT 08 and TT 09, by the end of this year, moving forward with its six-well program, and to complete 3-D seismic covering the Taq Taq development area.

Addax estimates Taq Taq field has 1.2- to 2.7 billion barrels of oil in place. The Taq Taq development plan is based on a 200,000-barrel-per-day production plateau and ultimate capital investment may be more than C$500 million. Addax Petroleum has a 2-D survey covering additional exploration prospects later.

"We also have exploration plays in the deepwater joint-development zone of Sao Tome and Nigeria and the deepwater of Nigeria," says Ebsary. "And we have an asset in Cameroon. We have a block in the shallow offshore there that we plan to drill in the fourth quarter of this year.

"We are not producing there at the moment, but obviously we are very hopeful for that campaign and are hoping to have discoveries. If we find them, we would go into production in the next couple of years."



Funding drilling

During the PanOcean acquisition, Addax raised a debt facility to fund it. Normally, Addax funds its activities with cash. "On a regular basis we fund our activities through our own cash-flow generation. Our annual budget is a break-even budget. We use our cash flow to grow these assets further.

"We think we've got some very big prizes on the horizon," Ebsary says.

Addax has some 350 million barrels of reserves worldwide, and plans to double that position. Also, Ebsary would like to see production grow to more than 200,000 barrels per day during the next few years. That kind of growth would push Addax into the C$10- to C$15-billion-market-cap space.

Before joining Addax, Ebsary was treasurer for Elf Petroleum UK, a subsidiary of Paris-based Elf Aquitaine, which merged with TotalFina in 2000 to form Total SA.

Prior to Addax Petroleum, Gandur was honorary consul for the Republic of Congo in Geneva, was awarded diplomat status by Senegal, received the decorations of Grand Officer of the Lion Order of Senegal and Commander of the National Order of Benin, and worked in executive roles with several major commodity traders.

Ebsary says one of Addax's advantages is the technical abilities of its employees. "About 75% of our 160-member team in Geneva consists of technical people. Many of them come from the majors. We use 3-D seismic and horizontal-drilling techniques and we are fully up to date on most other current techniques.

"This strong technical competence gives us a competitive advantage in that it allows us to evaluate opportunities in-house, whereas other companies our size outsource a lot of their technical work."

Addax has about 300 employees in Nigeria, about 150 in Gabon, and others spread out among other offices. Its drilling program is geared toward 75 wells per year. It has plans to employ a deepwater rig and will be stepping up the number of wells in the next couple of years.

"We also have a nice balance of development wells, appraisal wells, and exploration wells. So we can continue drilling those development wells to keep the production and the cash flow up while at the same time using the cash to explore for some of the big prizes we have sitting in deepwater and in Kurdistan."

Comments