By Reuters Staff Writer
February 22, 2012 9:33 AM EST
(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 (APC.N) 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.
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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 (8:11 a.m. EST). Shell's shares were flat, in line while the STOXX Europe 600 Oil and Gas index .SXEP 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 January 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 KOILC.UL, India's GAIL (GAIL.NS), and Chinese state-controlled oil groups such as CNOOC (0883.HK) 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
Neighboring the Rovuma find, Italy's Eni (ENI.MI) has made its own major gas finds while, north of the maritime border, Norway's Statoil (STL.OL) has made a find in Tanzanian waters.
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