Royal Dutch Shell (NYSE:RDS-A) Expands in Africa

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Royal Dutch Shell has agreed to buy Cove Energy for GBP1.12-B (US$1.8-B), lifting its offer to access East Africa's huge Nat Gas reserves, but failing to quell rumors of a bidding war with Thailand's PTTEP for the Mozambique-focused explorer.

Cove's directors recommended the offer from Oil major 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 Tuesday.

Industry interest in East Africa has been gathering momentum after huge Nat Gas discoveries were made there, with the region tipped to become a major Nat Gas producing region supplying liquid natural gas ( LNG ) to energy hungry Asian markets.

Shares in Cove traded above Shell's 220 pence per share offer, + 4.6% to 227 pence at 1145 GMT, signaling investors are hopeful a higher bid is coming.

Shell said the deal was conditional upon approval from the government of Mozambique amongst other things, adding that it includes a break fee of GBP11.1-M if Cove later accepts a rival bid.

On a usual timetable, a competing offer would have a window of around 1 to 2 months to emerge.

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

Both Cove and Shell declined to comment on how capital gains tax which will be owed to Mozambique upon the sale of assets in the country will be paid.

The Cove's stake seems a small holding for a company the size of Shell, which is one of the World's biggest LNG players.

Anadarko ( APC ), Japan's Mitsui (PK:MITSY) and Indian groups Bharat Petroleum and Videocon each own 10% stakes in the Rovuma licence.

Other companies with gas discoveries in the regions include Italy's Eni, whose field neighbors Cove's Rovuma area, and to the North of the maritime border, Norway's Statoil, which has made a find in Tanzanian waters.

Shell had previously made a US$1.6-B bid for Cove in February, before PTTEP beat the offer, prompting the bidding war, with an Indian consortium saying at one point it was also considering entering the action.

Separately, Mozambique said Tuesday that it will launch a new bidding round for exploration licenses in the southern part of the Rovuma basin by the end of this year.

Paul A. Ebeling, Jnr.

Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster's Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.

Paul A. Ebeling, Jnr has studied the global financial and stock markets since 1984, following a successful business career that included investment banking, and market and business analysis. He is a specialist in equities/commodities, and an accomplished chart reader who advises technicians with regard to Major Indices Resistance/Support Levels.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Commodities

Referenced Stocks: APC , LNG

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