/ 5 January 2012

Cove eyes East Africa potential in $1bn sale

British oil and gas explorer Cove Energy has put itself up for sale, prompting some analysts to predict a price tag above $1-billion and a test of the industry’s interest in the emerging gas basins of East Africa.

Analysts said it made sense for Cove, until recently an industry minnow, to sell up after finding large gas reserves offshore Mozambique, alongside its US partner, Anadarko Petroleum.

Cove shares traded up 10.2 at 124 pence, valuing the company at over $900-million, by 13:26 GMT after earlier hitting a record 127.75p.

“We see this as a positive move that will reduce concerns that Cove might wait too long to monetise its Mozambique assets and have to raise further funding in mid-2012 to meet increasing capex [capital expenditure] requirements of the project,” Michael Alsford, oil analyst at Citigroup, said in a research note.

Cove said in December it was inviting bids for its main asset, an 8.5% stake in the Rovuma Area 1 offshore block in Mozambique and associated liquid natural gas (LNG) project, which is currently at the design stage.

Cove has now instructed its advisor, Standard Chartered Bank, that it is also willing to consider an outright sale.

Snapping up stakes
Simon Ashby-Rudd, global head of oil & gas at Standard Bank, said the size of the stake in Rovuma may be too small to attract strong interest from the biggest oil companies such as BP Plc, Royal Dutch Shell Plc and Exxon Mobil Corporation.

“The buyer is most likely to be one of the gas off-takers, and in particular, the Asian gas buyers,” he said.

Asian LNG buyers such as Tokyo Gas, Korea Gas Corp and Chinese oil companies CNOOC, Sinopec and PetroChina have in recent years been snapping up stakes in LNG projects from which they buy gas.

Big western oil groups such as Shell and Exxon tend to prefer to take large or controlling shareholdings in projects, so a major that wanted to boost their presence in the area might be better served by trying to convince Anadarko to sell its 36.5% interest in the Rovuma Area 1.

Anadarko has said it plans to develop the project but industry sources say its culture as an explorer means it would find it hard to refuse an attractive offer of cash that could be ploughed back into further exploration.

Alternatively an ambitious bidder could buy Tanzania-focused Ophir Energy, which industry sources said had invited parties to bid for a part of its interests in Tanzania.

Cove was founded in 2003 as Lapp Plats plc, and shifted its focus to oil and gas only in 2009, with the arrival of former Shell executive Michael Blaha as executive chairperson.

Cove purchased its interest in Rovuma Area 1, which analysts at Peel Hunt said was now worth $864.45-million, from Artumas Group for $3.3-million in that same year, although it has since invested tens of millions of dollars in the block.

London and Oslo-listed Wentworth Resources, as Artumas is now known, retains an entitlement to a share of Cove’s profits from the block. Its shares rose 9.9% in Oslo.

Cove said Britain’s Takeover Panel had agreed that potential suitors need not be publicly identified and that they would not be subject to the usual 28-day rule for making a formal bid. — Reuters