Royal Dutch Shell PLC, Europe’s largest oil company, offered to buy African explorer Cove Energy PLC for ￡994.4 million (US$1.6 billion) to expand in Mozambique and Kenya.
Shell is offering ￡1.95 for each Cove share, a 26 percent premium to the closing price of the London-based company on Tuesday, according to a statement.
Cove’s board said separately that it expected to recommend the proposed acquisition.
Cove put itself up for sale last month after reporting one of the world’s largest gas discoveries in a decade off Mozambique.
Cove holds an 8.5 percent stake in the Rovuma Area 1, which holds 425 million to 850 million cubic meters of recoverable gas, enough to justify production of liquefied natural gas for Asian markets.
The discovery is operated by Anadarko Petroleum Corp.
“This is a much better price than the market anticipated and will likely not see” another bidder, said Stuart Joyner, an analyst at Investec Securities in London.
Cove rose as much as ￡0.3875, or 25 percent, to ￡1.9325 a share, in London trading. The shares were at ￡1.9225 at 8:08am. Shell gained 0.3 percent to ￡23.11 in London.
Cove has already been working with Total SA and BG Group PLC to explore off the coast of Kenya.
Last year, it joined Cairn Energy PLC to bid for exploration licenses off Lebanon.
Shell, which joined forces with Petroleo Brasileiro SA of Brazil last year to search for oil and gas off Tanzania, has been unsuccessful so far in East Africa.
The Anglo-Dutch company plans to increase spending on exploration 35 percent to about US$5 billion this year.
Cove has received “a lot of serious interest” from national and international oil companies, John Martin, a managing director at Standard Chartered Bank, which is advising Cove on the sale, said on Tuesday. Morgan Stanley is acting for Shell.