Shell offers $1.8bn for Cove Energy

Royal Dutch Shell has agreed to buy Cove Energy for £1.12-billion, lifting its offer to access East Africa’s huge gas reserves, but failing to quell hopes of a bid battle for the Mozambique-focused explorer.

Cove’s directors recommended the offer from oil major Shell, which matched rather than beat a rival offer made by Thai state-controlled oil firm PTT Exploration and Production (PTTEP) in February, as Shell betted that its expertise would help secure the deal.

“PTTEP is currently considering its options and will make a further announcement as and when appropriate,” the Thai firm said in a statement on Tuesday.

Industry interest in East Africa has been gathering pace after huge gas discoveries were made there, with the region tipped to become a major natural gas producing region supplying liquid natural gas (LNG) to energy hungry Asian markets.

Shares in Cove traded above Shell’s 220 pence offer price up 3.7% to 225 pence, signalling investors are hopeful of a higher bid.

“Competing offers can still be made and the shares will now likely trade to a slight premium on the hope that PTTEP will trump Shell,” said Investec analysts.

In Shell’s favour
But Westhouse Securities analyst Andrew Matharu said Mozambique would likely favour Shell’s offer.

“A key component of this is how the Mozambique authorities want to develop their resources and a project of this scale needs an oil major with the financial resources and the expertise of bringing world class scale projects to fruition so you need someone like a Shell,” he said.

Shell said the deal was conditional upon approval from the government of Mozambique amongst other things.

Cove’s directors, in possession of a collective 4.38% stake in the company, said they would be accepting the offer.

Cove’s main asset is an 8.5% stake in the Rovuma Offshore Area one in Mozambique, where operator Anadarko has said recoverable reserves could top 30-trillion cubic feet of natural gas.

“Shell represents an excellent partner for all the stakeholders in the Rovuma LNG project given its extensive project development, operating and marketing experience in the entire LNG value chain,” Cove’s executive chairperson Michael Blaha said in a statement.

The deal includes a break fee clause, meaning Cove will have to pay Shell £11.1-million if it later accepts a rival bid.

Shell said its latest offer represented a 95.6% premium to the closing price of Cove’s shares on January 4, the day before the company put itself up for sale.

The company had previously made a $1.6-billion approach for Cove in February, before PTTEP beat the offer, prompting hopes of a bidding war, with an Indian consortium saying at one point it was also considering entering the fray.—Reuters


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