Shell bulks up in east Africa with £1 billion Cove takeover

The FTSE 100 oil giant will pay 195p-a-share for Cove, in a deal that will value the company at £992.4 million and will hand its top three executives an estimated total windfall of about $30 million (£19 million).

Shell, which was advised by Morgan Stanley, regards the takeover of Cove as an important step to developing a world-beating liquefied natural gas supply operation.

The jewel in Cove's crown is its 8.5% stake in the Rovuma Area 1 block off the shore of Mozambique, a promising LNG project that contains more than 30 billion cubic feet of natural gas. The project is moving to the development stage and could be a key supplier to the energy-hungry Asian markets.

"The acquisition of Cove would mark Shell's entry into exciting new hydrocarbon provinces in Kenya and Mozambique, with significant potential for LNG from recent gas discoveries offshore Mozambique," a Shell spokesman said.

LNG is produced by liquefying the gas at minus 160 degrees Celsius, shrinking it to 1/600th of its size and making it easier to transport.

John Craven, a lifelong geologist who took over as Cove's chief executive in May 2009, and Michael Blaha, the former head of Shell's Algerian business, who became the oil giant's executive chairman five months later, will share the bulk of the windfall. Michael Nolan, Cove's finance director, is set to pocket the rest.

The Rovuma project is led by Anadarko Petroleum, best known in the UK for being a partner to BP in the Macondo well project responsible for the Gulf of Mexico oil spill.

Although Cove also has assets off the shores of Kenya and Tanzania, these are less developed. Shell's bid, which management is recommending, values Cove at a 70% premium to its price on January 4, when Cove announced its intention to sell.

Cove's shares jumped 40p, or 26%, to 194.56p, while Shell's were flat at 2304.0p. Cove is being advised by Standard Chartered.