Investors pushed up shares East Africa-focused oil and gas group Cove Energy on Tuesday after it clarified details of tax changes affecting its Mozambique operations.
In March Cove announced that it could face an unexpected tax charge in relation to its 8.5% stake in the huge Rovuma offshore gas discovery and its 10% interest in the Rovuma onshore block.
The firm is currently the subject of a bidding war between Shell and the Thai national energy company PTT.
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Reports suggested Mozambique's minerals minister wanted to impose a capital gains tax on any disposal of the stake were Cover to be sold.
"The company will be subject to Mozambique corporate income tax on the imputed capital gain arising on its Mozambique Assets as a result of the transaction," Cove announced today.
"The effective tax rate to be applied to the taxable gain will be 12.8% after applying available tapering relief to such gain."
The company added that discussions with possible buyers were ongoing, but there could be no certainty that any offer would be made, nor any indication of much the suitors might pay.
The company's shares rose 3.5% in early trading following the announcement.
When the issue arose in March Merchant Securities analyst Brendan Long said it was "very upsetting news with very serious ramifications for explorers across Africa".
"By the standards of oil & gas tax-grabs, taxes on capital gains are the worst possible type and they are also the rarest," he said.
"This is worse than a retroactive modification of the tax parameters because it goes against the principles of tax agreements between oil companies and host governments and leaves companies with effectively no visibility," he added.
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