Tanzania: Cove Sells Mnazi Bay Stake

Tanzania Cove Sells Mnazi Bay Stake

Cove Energy plc, the AIM quoted upstream oil and gas company announces today that it has entered in to an agreement to divest its Tanzanian interests, comprising a 16.38% interest in production operations and 20.475% interest in exploration operations in the Mnazi Bay Production Sharing Contrac, to Wentworth Resources Ltd.

The Agreement provides for transfer of 100% of the shares of Cove Energy Tanzania Mnazi Bay Limited, a wholly owned group subsidiary of Cove, to Wentworth in exchange for:

  • An increase in profit share from Area 1 Rovuma Offshore Exploration & Production Concession Contract through the termination by Wentworth of its royalty interest of 4.95% over Coveˇ¦s 8.5% share of the profits derived from the Area 1 EPCC;
  • Two million newly issued fully paid shares in Wentworth to be retained by Cove; and
  • Contingent payments of up to US$8.5 million, depending on future natural gas production thresholds from the Mnazi Bay PSC being achieved (the “Contingent Payment”). Any proceeds arising from the Contingent Payment will be used for general working capital.

Completion of the transfers provided for in the Agreement (the “Completion”) is subject to, and will occur on receipt of normal regulatory approval by the Government of Tanzania.

Les Etablissements Maurel et Prom (M&P) and Tanzania Petroleum Development Corporation (TPDC) have rights of pre-emption under the Mnazi Bay Joint Operating Agreement to be exercised within 30 days of the execution of the Agreement. However, the consideration to be received by Cove under the terms of the Agreement (including termination of the Royalty) is not affected as any pre-emption will be satisfied following Completion through sale by Wentworth of the relevant participating interest in the Mnazi Bay PSC to M&P and / or TPDC. The transaction is valued at approximately US$39 million.

Effective Date

The Effective Date of the Agreement is 30th September 2011. Cove will continue to meet its financial and contractual obligations under the Mnazi Bay PSC including any drilling costs, until Completion. However, under the terms of the Agreement, Cove will be reimbursed by Wentworth for its costs incurred between the Effective Date and Completion.

Benefits to Cove

The Agreement is an important strategic step for Cove, particularly in light of the Company’s announcement on 5th January 2012 of the commencement of a formal corporate sale process, running alongside other options including possible sale of its interest in Area 1 EPCC. Following the termination of the Royalty, Cove will have an increased share in Area 1 EPCC through its resulting unencumbered 8.5% participating interest.

In addition through the divestment of its interest in Mnazi Bay PSC, Cove will not have any ongoing commitment to forthcoming expenditures on the Mnazi Bay PSC but will retain some upside exposure through the Consideration Shares and the Contingent Payment. It will enable the Company to focus on its core portfolio of projects in Mozambique and Kenya and the Directors believe that it should positively assist the sales process.

Chief Executive, John Craven, commented:

This transaction is an important strategic and positive step for Cove, which I believe enhances our business going forward. The Agreement with Wentworth increases Cove’s share of our core asset, the Area 1 EPCC, by removal of the Royalty. Also divesting our Tanzanian interests allows Cove to focus on its offshore blocks where considerable upside potential remains from the ongoing exploration and appraisal programmes in both Mozambique and Kenya. Mnazi Bay was an important initial foundation for the Company, but the current Mnazi Bay programme better fits Wentworth’s focused capabilities.”

On behalf of all of us at Cove I would like to express to Wentworth our very best wishes for the future. We have enjoyed an excellent working relationship in the past and I am happy that we have concluded a deal that should be beneficial to both parties.”

LNG World News Staff, January 30, 2012