Wentworth increases stake in Cove's Mnazi Bay asset

LONDON (ShareCast) - Wentworth Resources, the East Africa-focused oil and gas company, is set to boost its interest in the Mnazi Bay concession, offshore Tanzania, through a swap deal with Cove Energy (Berlin: LPC.BE - news) . The transaction will see Wentworth terminate its 4.95% royalty interest from Cove's share in the Rovuma Area 1 Concession. In addition, Cove will receive two million new shares in Wentworth, and a payment from Wentworth of up to $8.5 depending on natural gas production rates. The total value of the transaction is approximately $38.8m. Following completion Wentworth will hold a 41.78% interest in Mnazi Bay, Maure & Prom will hold 38.22% and the Tanzania Petroleum Development Corporation 20%. The Executive Chairman of Wentworth, Bob McBean, says the transaction is a boon to both Cove and his own firm, describing it as a "win situation for both parties". News of the deal saw Wentworth's shares gain 0.9% by 10:39. Westhouse Securities, a broker specialising in resource stocks, suggested that the announcement will not have a material impact on the valuation of Cove. "However, it does help to progress its strategic decision to pursue a corporate sale. The interest in Tanzania is, at present, underutilised and non-core," Westhouse believes. "The transaction cost of $39m was in line with our valuation of the asset. The deal does, however, simplify the sale process going forward, by eliminating the Wentworth royalty on Cove's 8.5% interest in Area 1 while also freeing the group from future capital requirements associated with the Mnazi Bay PSC work programme.," the broker added. Westhouse rates Cove's shares as a "buy" and has a target price on the stock of 188p, which incorporates a 30% takeover premium. BS