Mozambique oil: Shell offers $1.6 billion for Cove Energy

Anglo-Dutch oil company Royal Dutch Shell has offered $1.6 billion to buy African oil explorer Cove Energy, the Wall Street Journal reported.

“This is a much better price than the market anticipated and will likely not see” another bidder, Stuart Joyner, an analyst at Investec Securities in London, told Bloomberg Businessweek. Cove's board of directors said it would recommend the proposed acquisition, Reuters reported.

According to Bloomberg Businessweek:

Shell, which joined forces with Petroleo Brasileiro SA of Brazil last year to search for oil and gas off Tanzania, has been unsuccessful so far in East Africa. It plans to increase spending on exploration 35 percent to about $5 billion this year.

Cove recently reported the discovery of one of the world's largest areas of recoverable gas in a decade, located off Mozambique, according to Bloomberg Businessweek.

Cove owns an 8.5 percent stake in the Rovuma gas field off Mozambique, which has potential gas reserves of 15 trillion to 30 trillion cubic feet, the Wall Street Journal reported. The partners in the project plan to freeze the gas into liquefied natural gas (LNG) and sell it to Asian markets, Reuters reported.

Analysts expect that, if the deal goes through, Shell will attempt to buy other companies’ stakes in Rovuma, Reuters reported. "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," Irene Himona, oil analyst at Societe Generale, told Reuters.

Shell has said it aims to pay $2 to $3 a barrel of oil equivalent for acquisitions, and Sandford C. Bernstein estimates the company would be paying $4.10 a barrel of oil equivalent for Cove, the Wall Street Journal reported.

More from GlobalPost: Nigeria: Shell says oil lost to thieves, corruption

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