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June 24, 2009 5:30 PM

Vinson, Three Canadian Firms Advise on $7.2 Billion Oil Deal

Posted by Zach Lowe

Vinson & Elkins and the Canadian firm Stikeman Elliott advised the state-owned Chinese oil company Sinopec Group in its $7.2 billion acquisition of Addax Petroleum Corp., a Switzerland-based oil and gas exploration company that is listed on exchanges in London and Toronto. 

It's a landmark deal, according to Bloomberg and the Wall Street Journal. It is the largest-ever overseas acquisition by a Chinese company, and it gives Sinopec, one of the world's oil giants, access to Addax production facilities off the coast of West Africa and in the politically sensitive Kurdish region of Iraq. 

The Canadian firm Fasken Martineau advised Addax on the deal, and Osler, Hoskin & Harcourt represented the company's board of directors. 

The deal is fraught with complexities, according to the WSJ and lawyers on the deal, starting with the fact that the profitability of oil exploration in northern Iraq is far from certain. Earlier this year, Iraq's oil minister allowed foreign companies to explore oil fields in the region to export crude oil directly to international markets, the WSJ says. But whether they can profit from that oil is unclear. So far, the Iraqi government has required that most profits be sent its way. 

(Still, foreign companies are optimistic, Bloomberg says. Earlier this month, U.K.-based Heritage Oil Ltd. agreed to a $2.52 billion deal to acquire Turkey's Genel Energy International Ltd., which has assets in the Kurdish region.)

Richard Steinberg, the lead Fasken partner on the deal, says the political uncertainties forced the two sides to negotiate complicated risk-sharing agreements that have yet to be disclosed. He could not comment further. 

Sinopec will have to pay a $259 million ($300 million in Canadian dollars) breakup fee if it backs out of the deal. The Chinese government has until Aug. 24 to officially approve the agreement; Addax directors have already recommended shareholders accept it. Sinopec is paying $45.40 ($52.50 Canadian) cash per Addax share, a whopping 45 percent premium on the stock's closing price on June 5--the day the talks were first disclosed, Bloomberg reports.

Partners Paul Deemer and David Blumental lead the Vinson team. They did not return e-mails seeking comment. 

Partner David Lefebvre led the Stikeman team, which served as lead counsel to Sinopec on Canadian matters; Vinson handled the deal in China and the U.S., lawyers said. Lefebvre did not immediately return messages seeking comment. 

Stikeman and Vinson have teamed up on a Sinopec acquisition in Canada before. The two firms advised the Chinese giant on its $1.9 billion purchase of Calgary-based Tanganyika Oil Company Ltd. earlier this year.

Osler partners Clay Horner (cochair of the firm) and Jeremy Fraiberg led the firm's team advising the Addax directors. 

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