Shell station

Shell to buy Cove Energy for �1.12bn

Royal Dutch Shell has agreed to buy Cove Energy for £1.12bn, raising its offer to access East Africa's huge gas reserves.

Cove's directors recommended the offer from oil company Shell, which matched rather than beat a rival offer made by Thai state-controlled oil firm PTT Exploration and Production Pcl (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.

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 per cent 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.

However, 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 among other things.

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

Cove's main asset is an 8.5 per cent stake in the Rovuma Offshore Area 1 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 chairman Michael Blaha said in a statement.

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

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

The company had previously made a £0.99bn 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.

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