Inside the world of business
Cove Energy's Irish shareholders to split €100m if Shell bid accepted
AS FRANK Daly, chief executive of Enterprise Ireland put it: there was a “palpable energy and optimism” at the Ireland-China Trade Investment Forum this week. It was an event he described as a “red-letter day” for Sino-Irish trade relations. But will this “energy” translate into actual business?
While a number of commercial agreements were announced yesterday, trade between Ireland and the world’s second largest economy has not been as extensive as many would have hoped.
After all, despite the fact that the Chinese economy continues to roar ahead – reporting GDP growth of more than 9 per cent in 2011 – Irish exports to the region are more subdued than one might expect from a country relying on exports for economic recovery.
While the news that Irish exports to China increased by 10 per cent in 2011 may be welcome, it is nonetheless far below the European Union average. In the first 10 months of 2011, for example, total EU exports to China grew by 21 per cent.
Moreover, it must be hoped that, on the other side, Chinese investment in Ireland also increases. In a tale frequently recounted over the course of vice-president Xi Jinping’s visit, the Chinese first visited Ireland on a trade mission in the late 1970s, where they were impressed by the Shannon Duty Free Zone.
It will clearly require a lot of energy if China’s relationship to Ireland is to rival that of the US, which invested $18 billion (€13.6 billion) in Ireland in the first six months of 2011 alone. As disclosed during the visit, Chinese investment in Ireland came to just $148 million (€112 million) in 2011.
'Red letter day' of Chinese visit must meet trade expectations
LAST YEAR, Cove Energy was one of the names tossed around when market analysts speculated on what might be the next Irish exploration success story as per Tullow.
It was not tossed around that often or by that many people, but it certainly cropped up. The main reasons were its involvement in the Rovuma gas project and its position in east Africa, which is considered a major oil and gas play in the industry.
It is probably stretching a point now to describe it as Irish. It is listed and based in London, but chief executive John Craven and finance officer Michael Nolan are Irish, as are about 10 per cent of its shareholders.
They will share close to £100 million if the 195p bid announced yesterday by Shell goes through. Some bought for as little as 8p, others got in for between 10p and 12p, so they are looking at a big payday, something that does not happen every day with listed Irish exploration companies.
The deal also means that Craven, who will net about £18 million for his stake, has struck proverbial gold after a search that has taken in the Celtic Sea, Africa and a few points in between.
He will also feel vindicated, as he effectively took a cash shell and used it to buy into what has turned out to be a hot prospect in his industry.
Cove has interests in a series of licences stretching along Kenya, Tanzania and Mozambique, where it has 8.5 per cent of the Rovuma Basin, which could have 30 trillion cubic feet of natural gas – twice as large as the biggest single find made in the North Sea in its heyday.
The gas there is suitable for liquid natural gas (LNG) production and a plant forms part of the overall Rovuma project, one of the factors that made it particularly attractive to Shell which is one of the world’s biggest producers of LNG. The other is, presumably, that it has access to ready-made markets in Asia and the tankers carrying the fuel will not have to negotiate the Straits of Hormuz.
It will come as no surprise to hear that the Cove board said that it is in shareholders’ interests to progress the Shell bid to the point where a firm offer can be made to shareholders.
A number of suitors courted Cove after it put itself on the block early last month. On yesterday’s evidence, Shell looks to be ready to consummate a deal. At the price, shareholders will be only too happy to back their union.
Little political enthusiasm for disposal of State assets
IT IS tempting to dismiss the State assets disposal programme announced yesterday as little more than a clever piece of troika management.
The Government appears to have entered into a pretty loose commitment to sell a few assets which – bar the energy business of Bord Gáis – are not likely to be of much interest to anyone. The crown jewels of the State portfolio, such as the ESB or the DAA, have been left outside of the agreement.
The other substantial asset put on the table – the remaining stake in Aer Lingus – is of limited value unless Ryanair decides to play ball and sell its stake. And even this proposal comes with a caveat that it will only be sold if the share price improves.
Enthusiasm for selling State assets is understandably muted on both sides of the Coalition. It is ideologically unpalatable for many in Labour and politically very difficult to sell to their supporters.
The sales simply do not make sense for many in Fine Gael given the fire sale prices that will be achieved. Some also question whether the issue is being pursued as much for the sake of IMF-inspired economic reform as to raise cash.
The agreement of the troika to let some of the spoils be made available for job creation to incentivise the Government to show some enthusiasm for the process.
But an awful lot of political pain will have to be taken for no gain to hit the €1 billion threshold for privatisation receipts after which the proceeds are shared.
Taking this into account and the hodge-podge of assets on the table plus the fact that the proposed timetable does not envisage any transactions commencing before 2013, there are plenty of reasons to believe that the Government has its fingers crossed that the plan will be overtaken by events and quietly shelved.
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