The auction for the acquisition of Cove Energy plc (LSE: COV) reached its dramatic conclusion yesterday when Royal Dutch Shell plc (NYSE: RDS; LSE: RDSA) pulled out, leaving the field to Thailand's PTT Exploration and Production Ltd. (SET: PTT). The six-month auction for Cove Energy drew the interest of Noble Energy Inc. (NYSE: NBL), Delek Group Ltd. (TASE: DLEKG), and Ratio Oil Exploration (1992) LP (TASE:RATI.L), the owners of Israel's offshore Leviathan natural gas discovery. Leviathan's partners are seeking a strategic partner to acquire 25% of the rights to the discovery, and the Cove Energy deal could serve as a benchmark for a future deal, as it owns a stake in a similar sized offshore discovery in Mozambique, Rovuma.
Cove Energy owns 8.5% of the Rovuma license, where two discoveries were made in 2010 and 2012. The Rovuma discoveries total 22-30 trillion cubic feet (TCF), compared with the 17-20 TCF Leviathan discovery. Like Leviathan, the Rovuma fields are in the pre-development stage, and the operating partner Anadarko Petroleum Corporation (NYSE: APC) hopes to begin sales to the Far East in 2018.
The Mozambique government owns 25% of the Rovuma field, Andarko owns 36.5%, India's Bharat Petroleum Corporation Ltd. (BSE: 500547) owns 10%, Japan's Mitsui & Co. Ltd. (TSE: 8031) owns 30%, and Cove Energy owns 8.5%.
The Mozambique government's take from gas discoveries is 65%, slightly higher than the Israeli government's take, but Mozambique has no environmental groups, planning commissions, or High Court of Justice to stymie the construction of facilities for the development and export of its gas fields. On the other hand, Israel's gas fields have better market conditions in the Mediterranean basin.
In January 2012, Cove Energy announced that it was up for sale, and Shell and PTT were the finalists. (PTT is familiar to Israelis because of its failed investment in Egypt's East Mediterranean Gas Company (EMG)). PTT won the final auction with a bid of £1.22 billion ($1.9 billion). According to energy experts, this reflects a price of $0.85 per million BTU, or $15 billion for the Rovuma gas fields.
Market experts currently value Leviathan at $3 billion. Clal Finance analyst Yaron Zar says that the value for Rovuma is much higher, however, "there is a big 'but' that largely justifies the difference, and it is that the company owns other assets. The license has other [geologic] structures, and at the pace of discoveries, there is the potential for more discoveries. The company also owns offshore licenses in Kenya and Tanzania. Another important difference is that Cove Energy already has international majors as partners, which greatly reduces the risk. On top of this is the availability of an LNG facility and that almost all the gas is slated for export, compared with the requirement to reserve a substantial part of Leviathan's gas for the domestic market [in Israel]. Bottom line, Israel is not Mozambique."
Published by Globes [online], Israel business news - www.globes-online.com - on July 18, 2012
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