UPDATE 3-Shell to buy Cove Energy for $1.6 bln

Wed Feb 22, 2012 8:41am EST

* Offers 195 pence a share in cash

* Over 70 pct premium to Cove closing price on Jan. 4

* Cove shares up 25 percent, Shell flat

By Tom Bergin

LONDON, Feb 22 (Reuters) - Royal Dutch Shell Plc has made an agreed 992.4 million pounds ($1.6 billion) bid for Mozambique-focused Cove Energy, offering a full price to open up a new gas frontier for the Anglo-Dutch oil major in East Africa.

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

The project partners plan to build plants to freeze the gas into liquefied natural gas (LNG) and ship it to Asian markets.

Analysts said the small size of the stake meant Shell would likely approach other parties in the project and offer to buy part of their stakes.

"As the number one LNG player, Shell absolutely must be in East Africa... we should assume that 8.5 percent is too small for them," said Irene Himona, oil analyst at Societe Generale.

Shell said it had a "firm intention" to make a 195 pence per share cash bid, which Cove's directors said on Wednesday they would recommend to shareholders.

Cove's shares jumped 25 percent to trade at 193.07 pence at 1311 GMT. Shell's shares were flat, in line while the STOXX Europe 600 Oil and Gas index traded down 0.4 percent.

Analysts at Citigroup agreed the deal made sense for Shell but said the "valuation looks stretched".

Richard Savage at Mirabaud said in a research note that the price suggested that Shell expected the declared reserves to be increased in time.

Shell's proposed bid is an over 70 percent premium to Cove's closing share price on Jan. 4, when Cove announced plans to sell, although investors were already betting on a bid at that point.

Himona said other bidders could yet emerge and analysts at Westhouse tipped the Korea National Oil Corp, India's GAIL, and Chinese state-controlled oil groups such as CNOOC as potential deal spoilers.

Any deal to buy Cove, which also has interests in Tanzania and Kenya, is subject to Mozambique government approval.

MAJOR NEW FRONTIER

Neighbouring the Rovuma find, Italy's Eni has made its own major gas finds while, north of the maritime border, Norway's Statoil has made a find in Tanzanian waters.

On Tuesday, the Tanzanian government said British gas and oil firm BG Group planned to step up its investment on the east African coastline fast becoming a major gas hub with a $500 million investment this year.

Analysts expect Mozambique could emerge as a major centre of LNG export. Bernstein noted that project build costs should be lower in the other emerging LNG province, Australia.

Japan's reduction in focus on nuclear power after the disaster at the Fukishima plant has contributed to expectations that Asia will continue to drive strong LNG prices for years to come despite strong production growth due to shale discoveries.

In addition to Anadarko, Japan's Mitsui and Indian groups Bharat Petroleum and Videocon each own 10 percent stakes in the Rovuma licence. The values of these interests could now be marked up.

Morgan Stanley advised Shell on the bid, while Standard Chartered advised Cove.

Separately, Shell said Malcom Brinded, the head of Shell's oil and gas exploration and production operations outside the America's, would step down.

Brinded, who was a contender for the Chief Executive role before Peter Voser was appointed in 2009, will be replaced by Andrew Brown, currently head of Shell's operations in Qatar, where two major gas projects have come on line in the past year.

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