Stock pick of the week: Cove Energy
Cove Energy is an Irish managed upstream oil and gas exploration and production (E&P) company listed on London’s AIM Exchange.
It is currently invested in oil and gas exploration projects in East Africa. Over the last year, it has enjoyed significant exploration success with significant natural gas discoveries off the coast of Mozambique.
Out of a total of six exploration wells, five were significant gas discoveries.
Given the large size of the discovered gas and the limited local demand for natural gas, Cove and its partners are considering constructing a plant to convert natural gas to LNG and export the gas to markets in the Far East where demand is strong.
A feasibility study is underway to determine its viability.
The total capital cost for the LNG project is likely to be about $15bn. A project of that size will fall outside Cove’s strategy.
However, it will be of interest to larger oil and gas companies and other LNG players some of whom are already partners in the project.
Successful feasibility will enable Cove to optimise the value of its investment and to divest from the project, which should be positive for the share price.
Besides offshore Mozambique, Cove has other exploration projects in the frontier East Africa region.
These include an adjacent onshore block in Mozambique, a working interest in several exploration blocks off the cost of Kenya and a gas producing asset in Tanzania’s Mnazi Bay.
Over the short to medium term, Cove and its partners will carry out further exploration activity in these regions.
Positive news flow from these should also have a positive impact on Cove’s share price.
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