Cove Energy drops on possible Mozambican tax

Cove Energy, the commodities explorer, has dropped sharply this morning on fears it may face an unexpected tax charge.

Cove owns an 8.5% stake in the huge Rovuma gas discovery offshore Mozambique and is currently the subject of a bidding war between Shell and the Thai national energy company PTT.

Recent press reports have suggested Mozambique's minerals minister wants to impose a capital gains tax on any disposal.

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Cove says it is "seeking clarity" on the issue; it's shares had dropped nearly 11% by 10:13.

According to Merchant Securities analyst Brendan Long, "this is 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."

"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 said.

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