May 23, 2012 / 10:13 AM / in 5 years

PTT's $1.9 billion bid for Cove trumps Shell

LONDON (Reuters) - Thailand’s PTT Exploration and Production stoked the bid battle for Cove Energy on Wednesday, topping Royal Dutch Shell with a 1.22-billion-pound ($1.9 billion) offer that underscores interest in new east African gas finds.

Cove shares jumped as much as 11 percent to 249 pence, above PTT’s offer of 240 pence a share and signaling investors expect Shell to come back with a higher bid.

“Clearly the game is not yet over,” analysts at Singer Capital Markets said in a research note.

East Africa is set to become one of the world’s largest gas exporters, executives operating in the region believe, after a string of major discoveries across Mozambique and Tanzania. That has fuelled speculation of a wave of takeover deals involving companies active there.

Cove has an 8.5 percent stake in massive gas finds offshore northern Mozambique. Project leader Anadarko Petroleum plans to build large plants to freeze the gas to liquefied natural gas (LNG) for export in ships.

PTT sees Cove as an opportunity to secure energy resources to help power Thailand’s economy. Shell hopes Cove will be a springboard to a major presence in east Africa.

Cove management said hours before of a deadline for investors to accept Shell’s bid that it had switched to back the improved offer from PTT.

It had previously supported Shell’s offer, which followed a PTT bid that trumped Shell’s opening salvo in February.

Investors said they were now watching to see if the Mozambique government was prepared to support a takeover by PTT, which has not previously built an LNG export plant.

Maputo previously gave the green light to Shell, the market leader in LNG, and some Cove shareholders fear the government might block PTT’s higher bid, and favor Shell.

“We’re all exposed to the Mozambique government risk now,” said one hedge fund manager holding Cove stock.

CONSOLIDATION SEEN

The latest wave of exploration in Kenya, Tanzania and Mozambique in recent years was led by smaller explorers including London-listed Ophir Energy, Aminex and Wentworth Resources and Toronto-listed Africa Oil.

Industry executives say they expect a burst of consolidation as larger companies such as Norway’s Statoil, Britain’s BG Group and U.S.-based ExxonMobil, which have entered the region more recently, snap up smaller players.

Shell has already said it would like to add other acquisitions to Cove’s Mozambique interest. If it is successful in buying Cove, it is expected to bid for a share of a neighboring block that Italy’s Eni said it planned to sell.

These ambitious plans means Shell is not expected to walk away from Cove without a fight.

“Whilst it is not in Shell’s corporate culture to get into lengthy bidding wars, given the strategic nature of the asset, they may come back with a yet higher bid,” said Westhouse Security analysts.

Yet analysts said Shell would likely try and lobby the Mozambique government to back its bid rather than enter a counter-bid immediately.

The Anglo-Dutch oil major, Europe’s biggest oil company by market capitalization, declined to comment on PTT’s bid on Wednesday.

Whoever buys Cove will have to pay a capital gains tax to Mozambique, which Shell has estimated at around $200 million, pushing the value of PTT’s bid above $2 billion.

Cove will also owe Shell a 11.1 million pound break fee under the terms of the deal agreed in April.

Three sources close to the process said around 70 percent of Cove shares were in the hands of risk arbitrage hedge funds, whose strategy is to squeeze every last penny out of a takeover situation.

($1 = 0.6330 pound)

Addtional reporting by Khettiya Jittapong in Bangkok and Flak, Agnieszka Flak in Johannesburg; Editing by Dan Lalor and Mark Potter

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