Shell targets east Africa with £1.12bn swoop for Cove Energy

OIL giant Shell yesterday agreed to buy Cove Energy for £1.12 billion to get access to east Africa’s huge gas reserves, as analysts claimed a bid auction still loomed for the target company.

Directors of the Mozambique-focused energy explorer recommended the offer from Shell, which matched rather than trumped an earlier rival bid from Thai state-controlled oil firm PTT Exploration and Production (PTTEP).

Analysts said British-Dutch Shell was hoping its global reputation and expertise would carry the day, but a spokesman for the Thai firm said: “PTTEP is currently considering its options and will make a further announcement as and when appropriate.”

Energy industry interest in east Africa has mushroomed after major regional gas discoveries. Oil and gas experts now tip the region to become a big natural gas‑producing region supplying liquid natural gas, particularly to Asian markets seeking supplies.

Shares in Cove closed up 4.6 per cent to 227p after Shell announced its 220p-per-share offer, suggesting investors think a higher bid might be in the works.

Analysts at Investec said in a note yesterday: “Competing offers can still be made and the shares will now likely trade to a slight premium in the hope that PTTEP will trump Shell.”

However, Andrew Matharu, an energy analyst at Westhouse Securities, said he believed the Mozambique government would be likely to favour an acquisition of Cove by Shell.

“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 Shell,” Matharu said.

The deal is conditional upon approval from the Mozambique government, and Shell said it would get a “break fee” of over £11 million if Cove plumps for a rival offer.

Cove’s main asset is an 8.5 per cent stake in the Rovuma Offshore Area 1, where operator Anadarko has said recoverable reserves could top 30 trillion cubic feet of natural gas.

Other energy giants with gas discoveries in east Africa include Italy’s Eni, Norway’s Statoil and Bharat Petroleum of India.

At Shell’s annual results in February, chief executive Peter Voser said the group is to pump $30bn (£19bn) into 60 new projects and drilling options in 2012 – a jump from capital spending of $24bn last year.