Royal Dutch Shell recently bid to acquire Cove Energy for $1.56 billion cash. The feal comes after Shell said they were looking to expand their exposure to liquefied natural gas (LNG) in East Africa. The deal is expected to be approved by Cove Energy’s board of directors. Once approved, Shell would have access to the Rovuma Offshore natural gas field off the coast of Mozambique. The natural gas field is speculated to having 30 trillion cubic feet of LNG.
Shell is currently making moves to try to further cement itself as the world’s largest producer of LNG. That is why the company’s offer is a 73.3% premium to Cove’s closing price on January 4th, the last trading day before Shell announced its bid for the company.
The Rovuma Offshore natural gas field is one of many new projects showing up in East Africa. The Rovuma field is currently under operation of Anadarko Petroleum, which owns a commanding 36.5% stake. Next in line is Japan’s Mitsui with a 20% ownership stake, followed by India’s Bharat Petroleum and Videocon, both with 10% each. Mozambique’s ENH has a 15% stake; which leaves Shell with only a 8.5% stake.
However, Shell already has stakes in LNG fields in Tanzania and looks to expand into Kenya and further in Mozambique. This growing trend of spending lots of company money on exploration and production is catching on with several companies to get a more controlling roll in some of the world’s richest fields. ConocoPhillips has already announced that it would be separating into two separate, publicly traded companies to separate their refinery business from their exploration and production business to cut costs and not have refinery margins interfere with their other businesses.
Shell stands to gain the most from its commanding LNG stance in the world. Despite falling natural gas prices in the United States, the price of natural gas has been raising around the world. Some economists and analysts predict that natural gas will someday take over oil as the main source of energy. This would be great for the United States because we are sitting on top of a very large natural gas field which could give us over 100 years of energy independence.
Shell is betting that countries will eventually turn to natural gas as rising oil prices are affecting the global economy. The company is the top producer of LNG and as natural gas demand grows, you can bet that Shell will be raking in some serious profits.