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.

BS