November 14, 2013 3:38 pm

Ophir Energy: Dar es gas

Deal to sell stake in Tanzania gasfields may be less than it seems

Ophir Energy has been fishing for a partner to play alongside it in the alluring waters off east Africa. On Thursday it reeled in a big one. The Africa-focused oil and gas explorer will sell half of its 40 per cent stake in three gasfields offshore Tanzania to Pavilion Energy, a unit of Singapore’s Temasek, for nearly $1.3bn. The news sent Ophir’s shares up 20 per cent initially. Yet they fell back later – perhaps because the deal may be less than it seems.

The purchase of a 20 per cent stake in the Tanzania gasfields will boost Singapore’s claim to be an oil and gas hub. It will also delight the government of Tanzania, a new frontier in the oil and gas world. Not only does Pavilion’s arrival put a third robust partner alongside Ophir and BG Group (which owns 60 per cent and is the operator). The price implies $2.60/$2.80 per barrel of oil equivalent for Tanzanian gas – in line with the level at which the much larger deposits in nearby Mozambique are changing hands.

Tanzania also has another reason to be happy – it will reap a slice of the $1.3bn in tax. The country’s corporation tax is about 30 per cent, and its capital gains tax could be in that ballpark, even if the final amount is subject to negotiation. The realisation that Ophir’s bonanza will be subject to tax can hardly have been a surprise – why should Tanzania not levy CGT on such a transaction? But it put the brakes on what was beginning to look like an over-exuberant share price reaction.

Even with a 10 per cent bounce on Thursday, Ophir’s shares are below their mid-August level of 390p. For that to be reached again, Ophir will need to show success in an 18-month drilling programme in Tanzania and elsewhere. It has net cash of $750m even before Pavilion’s cheque arrives, which will fund the drilling. But it remains one of the most interesting exploration plays in the London market.

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