Cove Energy
www.cove-energy.com
www.cove-energy.com
Cove Energy is a junior oil and gas exploration company focussed initially on the Onshore Rovuma Block and Area 1 Rovuma Offshore Block in Mozambique and the Mnazi Bay and Msimbati Gas Fields in neighbouring Tanzania.
Shell’s £1 bln bid sends Cove Energy shares soaring
Cove Energy (LON:COV) shares shot up around 25 per cent today on the news that Shell (LON:RDSB) intends to offer just shy of £1 billion to buy the company.
The 195p a share bid is a 28.5 per cent premium to yesterday’s closing price. By mid-afternoon, Cove shares were poised just below the proposed take-out price, trading at 193.4p.
The proposed offer is subject to a receipt of written consent of the Mozambique's minister of mineral resources, the companies added.
Shell’s move comes just a day after Cove’s latest drilling success in Mozambique.
The AIM quoted firm is a partner in an Anadarko-led consortium that has made a series of large gas discoveries off the East African coast.
Yesterday, the firm revealed that the Lagosta-3 appraisal well had extended the western area of the gas field after it found 577 net feet of natural gas pay.
The field is currently estimated to contain between 15 and 30 trillion cubic feet of gas.
The partners plan to develop the field as a liquefied natural gas project (LNG).
Cove has an 8.5 per cent stake in the venture, as well as other exploration acreage in East Africa.
Shell already has interests in Tanzania and said that Cove would take it into Kenya and Mozambique, with significant potential for new LNG from recent gas discoveries offshore Mozambique, and further complementary exploration positions in East Africa.
Shell is already one of the world's largest LNG producers, with one of the most diverse LNG portfolios.
Analysts say that there is the possibility of rival bid, which may come from government-backed oil companies.
“We consider that the involvement of RDS will preclude other majors such as ExxonMobil from making a counter offer,” Westhouse Securities analyst Andrew Matharu said in a note to clients.
“However the state linked firms of Korea (KNOC), India (GAIL), and China (CNOOC and/or others) might consider making a higher bid.
“At the end it will probably come down to which party can gain the backing of the Mozambique government.”
Furthermore, Westhouse believes this latest piece of M&A activity, which follows Dragon Oil’s move for Cameroon-focused Bowleven, shows that cash-rich oil firms would rather buy in discovered resources rather than explore for new oil.
“Large cash rich companies are clearly taking advantage of the fact that on current valuations it is clearly cheaper to buy reserves through the stock market than to explore.
“We consider that, in the current industry environment, large companies will be looking for bid targets.”
Matharu says the big oil companies are looking for stocks that have substantial discounts to their net present value (NPV) and have had material exploration success in proven basins.
Bernstein analyst Oswald Clint said the acquisition would also be positive for Shell.
“While the deal is a small acquisition for Shell, it reinforces the company's position as the leading LNG supplier globally with the most diverse portfolio and East African LNG will have a cost advantage over Australian projects,” he said in a note to clients.
Fox-Davies added that "At US$1.5bn, or $1/mcf, while below our estimate of the value of the Windjammer discovery to Cove, it is a fair offer given the fact that there is considerable risk in the LNG markets, not least from pricing, but also regional geopolitical risk and EPC construction risk on the LNG facilities.”
The broker added that the offer also places the whole sector back on take-out watch, especially East African players such as Tullow Oil (LON:TLW), Ophir Energy (LON:OPHR), Tower Resources (LON:TRP), Pan Continental (ASX:PCL) and especially Aminex (LON:AEX) and Solo Oil (LON:SOLO), who are in Tanzania."
