PTTEP Trumps Shell With £1.1 Billion Cash Bid For Cove Energy

Backers of Cove Energy were popping the champagne corks over the weekend as Thailand’s PTTEP made a £1.1 billion cash bid for the AIM-quoted explorer, topping the £992.4 million bid made by Shell earlier in the week.  Shell’s offer had already been seen as a generous payday for Cove, with its bid offer of 195 pence per share representing a 30 per cent premium to the day-before trading price and a 73 per cent premium on the share price before Cove put itself up for sale in early January.

Indian, Korean and Chinese oil companies had all been touted as potential buyers of the AIM company, which has a much-coveted 8.5 per cent stake in a string of world-class gas discoveries offshore Mozambique.  PTTEP’s move, however, took the market by surprise, with its offer of 220 pence per share representing a 95.6 per cent premium on the share price before Cove announced itself open for bids and a 12.8 per cent premium on Shell’s bid.

The Cove Board has done an excellent job of realising value for shareholders.  It opened a data room to sell its Mozambique project in December but, no doubt having assessed interest levels, then announced it was putting the whole company on the auction block. Investors will now be wondering whether other bidders may be tempted to the table – indeed the shares were trading at 236.75 pence on Monday morning in anticipation of further interest and many analysts suspect Shell may come back with a counter offer.

This is a great deal for Cove, which only acquired the Mozambique assets in 2009 when it raised £42 million through a placing priced at 20 pence per share to secure a starter pack of assets for US$3 million from distressed seller Artumas.  That asset pack included an 8.5 per cent stake in the Rovuma Area 1 block offshore Mozambique, where operator Anadarko Petroleum of Houston was planning a wildcat campaign to test the potential of the undrilled deep offshore.

At the time, it was a high risk venture but high risks can – sometimes – deliver high rewards, in this case a run of discoveries with up to 30 TCF of recoverable gas with an estimated 30-50 TCF of gas-in-place not to mention the first evidence of oil off the coast of East Africa with the intriguing Ironclad well. PTTEP’s and Shell’s stretch offers could well signal that the bidders see scope for this tally to rise.

Anadarko plans to make a final investment decision on a two-train onshore LNG plant in 2013 to put the project on track for first gas in 2018. It’s for this reason Cove was keen to cash out to deliver returns for shareholders ahead of the capital intensive phase of LNG development.

The deal would certainly make a good fit for Shell, which is a global leader in LNG – last year Shell joint ventures supplies almost a third of the world’s LNG volumes –  and hungry for more gas to fuel expansion of its LNG strategy.

For the Thai state oil company it’s a way of securing a stake in this gas-rich area of East Africa, which is ideally situated to supply energy-hungry markets in the Far East.  Thailand is a net energy importer and has been seeking to secure supplies of LNG to meet burgeoning domestic demand. PTTEP’s parent company, PTT, last year completed construction of a 5 million tonne per year LNG receiving terminal, with an additional 5 million tpa to be developed in the near future. This would provide a ready customer for the Mozambique LNG.

Other companies with interests offshore East Africa rallied on the news of the competing bids, among them UK drillers Ophir, Afren and BG Group.

Any sale will require Mozambique government approval.