Tanzania: Cove Unloads Mnazi Bay Stake
Wentworth Resources Limited has reached an agreement with Cove Energy plc to acquire its 100% owned subsidiary, Cove Energy Tanzania Mnazi Bay Limited (“Cove Tanzania”).
Cove Tanzania holds a 16.38% participation interest in the production operations (20.475% participating interest in exploration operations) in the Mnazi Bay Concession, Tanzania (“Mnazi Bay”).
In exchange, the Company will terminate its right to receive a 4.95% royalty interest out of net profits from Cove’s 8.5% working interest in the Offshore Rovuma Area 1 Concession, Mozambique (collectively the “Swap Transaction”).
Pursuant to the Swap Transaction, Cove will also receive two million newly issued and fully paid up shares in Wentworth and a contingent payment of up to US$8.5 million should certain future natural gas production thresholds from Mnazi Bay be reached (“Contingent Payment”).
Following completion of the Swap Transaction, the interests in Mnazi Bay are as follows:
Wentworth will have a 41.78% participating interest in the production operations (52.225% participating interest in exploration operations),
Les Etablissements Maurel & Prom S.A. (“Maurel & Prom”), operator, will have a 38.22% participating interest in the production operations (47.775% participating interest in exploration operations), and
Tanzania Petroleum Development Corporation (“TPDC”) will retain its 20% participating interest in the production operations (0% participating interest in exploration operations).
Under the terms of the existing Joint Operating Agreement (“JOA”) between Wentworth, Maurel & Prom, Cove Tanzania and TPDC, both TPDC and Maurel & Prom have the right to acquire their proportionate share of Cove’s interest in Mnazi Bay for the cash equivalent value of the Swap Transaction, which is approximately US$38.8 million, by February 26, 2012 (“Pre-emptive Rights”). At the time of this press release, neither TPDC nor Maurel & Prom have exercised or waived their Pre-emptive Rights.
Under the terms of the farm-out to Maurel & Prom and Cove Tanzania in 2009, Wentworth is to be carried 70% by Maurel & Prom and 30% by Cove Tanzania through the cost of one exploration well and 200 square kilometers of 3D seismic or an alternative exploration and appraisal program of an equal cost (“Carry Obligation”). With Wentworth’s acquisition of Cove Tanzania, the Company will now be required to fund 30% of this Carry Obligation, with Maurel & Prom funding the remaining 70%, in these exploration operations. Following completion of the Carry Obligation, each party’s funding obligations will revert to their participating interests.
Wentworth Resources’ Executive Chairman, Bob McBean, commented:
“This transaction is a classic win situation for both parties involved as it goes a long way toward allowing Wentworth and Cove Energy to meet their own distinct corporate objectives. I would like to thank the management of Cove Energy for the cooperation and diligence shown throughout the process. We look forward to providing further updates.”
Cove Energy’s Chief Executive, John Craven, said:
“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.”
The Mnazi Bay Concession covers a 756km² area in south-eastern Tanzania, bordering Mozambique. In 1981, ENI drilled a shallow water, offshore well and discovered the Mnazi Bay Gas Field. The well was subsequently suspended and abandoned as there was no local demand for natural gas at that time.
In 2005, Wentworth re-entered the shut-in well and successfully drilled two appraisal wells and one exploration well, all of which encountered hydrocarbons. The fourth and final well discovered the previously unknown Msimbati Field. Wentworth went on to build two gas processing plants, 27km of 8” pipeline, and a 18MW gas-fired power plant.
Offshore Energy Today Staff, January 30, 2012; Image: Cove Energy