Three Cove executives to share £40m windfall after Shell takeover

Shell is setting up shop in Kenya and Mozambique after agreeing to buy the East Africa-focused oil and gas company Cove Energy for nearly £1bn.

The FTSE 100 oil giant will pay 195p a share for Cove in a deal that will value the company at £992.4m and will hand its top three executives an estimated total windfall of nearly £40m.

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

The jewel in Cove's crown is its 8.5 per cent stake in the Rovuma Area 1 block off the shore of Mozambique, a promising LNG project that contains more than 30bn 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.

"East Africa is a major prospective hydrocarbon province, which has seen a significant increase in exploration activity in recent years," he added.

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

John Craven, a lifelong geologist who became Cove's chief executive in May 2009, has shares and share options valued at £18.1m under the terms of the deal. Michael Blaha, the former head of Shell's Algerian business, who became the oil giant's executive chairman five months later, has shares and share options valued at £13.5m. Michael Nolan, Cove's finance director, will see his shares and options valued at £7.1m.

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

Cove also has assets off Kenya and Tanzania, but these are less developed.

Shell's bid, which management is recommending, values Cove at a 70 per cent premium to its price on 4 January, when Cove announced its intention to sell.

Cove's shares jumped by 39.5p, or 26 per cent, to 194p while Shell's were up 12p at 2,345.5p. Cove is being advised by Standard Chartered.