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Last updated: April 10, 2012 8:08 am
Cove Energy is set to resume its bidding process after Mozambican regulators informed the oil and gas explorer that it will impose a 12.8 per cent capital gains tax on its assets in the southern African nation, a decision that should end uncertainty over the company’s efforts to sell itself.
Cove, which is London-listed but has more than two-thirds of its assets in Mozambique, became the focus of bid approaches from Royal Dutch Shell and PTT Exploration, the state-controlled Thai energy group, after putting itself up for sale in January.
Two Indian companies – state-backed ONGC and Gail India – have also expressed interest in the African-focused energy company.
But the process was abruptly thrown into disarray when Esperanca Bias, Mozambique’s minerals minister, said the government would impose a capital gains tax on the transaction.
Cove’s shares fell sharply after Ms Bias’s comments triggered concerns that the company could become embroiled in the kind of long-running tax dispute that ensnared Heritage Oil as it was trying to sell its Ugandan oil interests to fellow oil explorer Tullow Oil in 2010.
An executive at Cove told the Financial Times that the company had received a letter confirming the tax arrangement from Mozambique’s National Petroleum Institute, the regulator, and would now be moving ahead with the bidding process.
Cove, which also has assets in Kenya and Tanzania, was initially offered nearly £1bn by Shell, before PTT mounted a rival proposed offer that valued the group at £1.12bn.
“It’s [the bidding process] been on hold since last month and we are quite happy that we have finally concluded … the taxation situation in Mozambique. Cove is very happy to move ahead with the bidding process,” the executive, who did not want to be named, said. “I think it’s basically a very good outcome – it’s realistically as good as it gets right now.”
Cove owns a 8.5 per cent stake in Mozambique’s Offshore Area 1 field in the Rovuma basin, which has yielded one of the largest natural gas discoveries of recent years. Anadarko Petroleum, which is the operator and holds a 36.5 per cent interest in the field, has said it could contain up to 30tn cubic feet of gas.
It has been estimated that the various gas projects could bring in $70bn of investment to Mozambique, one of the world’s poorest countries, which is expected to join the ranks of leading liquefied natural gas exporters by the end of the decade.
But as foreign investor attention has increased on the country, which also has rich coal reserves, the government has come under pressure from civil society groups to reform its tax regime to garner greater benefits for the country.
Capital gains was a particular issue after the state missed out on receiving taxes when Rio Tinto acquired control of Riversdale Mining, which had coking coal assets in Mozambique.
“We have several candidates [who] have entered [the bidding],” the Cove executive said. “It will not be an auction, it will be up to the parties to come up with an offer in the next few weeks.”
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