Shell has increased its bid to out-bid arch-rival, Thailand-State owned PPT Exploration and Production PLC in purchasing Cove Energy Limited.
The Royal Dutch Company increased it bids from €992.4 ($1.6billion) with 195P a share to €1.12billion ($1.8billion) in cash with 220P a share to secure the East African company. The new offer is a 42 % premium to the previous price.
The deal includes a break fee of 11.1 million pounds which Cove will owe Shell should a competitive offer win the company.
Shell offered €992.4 as a opening bid on February 22 in a management endorsed deal but two days after, PPT E&P matched it with $1.8billion. Now, shell has matched this offer yesterday in cash.
If Shell wins the deal, it will further aid its plan to reduce its dependence on oil in favour of gas but if PPT E&P wins, it will fuel its quest to meet its target sale of 900,000 barrel of oil by 2020.
Meanwhile, PTT E&P Plc says it is considering its option following the Dutch company offer on Tuesday. Buying Cove will be a speedy way for energy firms to get a foothold in the region.
Industries have continue to covert East Africa region following the discovery of huge natural gas resources in the region, which has been supplying Liquid Natural Gas (LNG) to Asian market.
However, Cove board have tilted its preference to Shell arguing that the Anglo-Dutch Company is an expert in gas exploration compared to other bidders.
A source from the Mozambique’s Ministry of Mineral Resources said although “it is a private deal, the successful company will ideally be one with a strong international presence, with a proven track record of reliability and technical strength.”
The company who wins will still be subjected to government approval. The Mozambique government has placed a 12.8% tax on the transaction.
According to Cove Executive Chairman, Michael Blaha , “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 main asset is an 8.5 percent stake in the Rovuma off shore area in Mozambique where Anadarko its major operator, said recoverable reserve could top 30 trillion cubic feet of natural Gas. It has assets in Kenya, Mozambique and Tanzania.
“There is potentially room for a higher bid, even though it looks like we are getting to the end of the game,” says Richard Hurowitz, CEO of New York based Hedge Fund who owns 1.3 % of Cove.
