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PTTEP trumps Shell in Cove bidding

by Laura Board | Published May 23, 2012 at 12:45 PM

Thailand's PTT Exploration and Production PCL on Wednesday, May 23, bested Royal Dutch Shell plc in the bidding for East Africa-focused exploration company Cove Energy plc, securing the target's backing for an offer worth £1.22 billion ($1.92 billion).

PTTEP's offer of 240 pence per share is 9.1% more than the 220 pence that Shell agreed to pay on April 24. Shell had originally offered 195 pence but lifted its bid to match the indicative price PTTEP had pitched in February.

In a statement Cove CEO John Craven said: "The bid from PTTEP represents significant value for shareholders and confirms the world-class nature of Cove's East African assets."

The PTTEP offer prolongs a near-five-month-long bid process that Cove announced it had officially concluded with the Shell agreement on April 24. Though the Thai company has persuaded Cove to switch its offer, investors expect the bidding to escalate.

Cove shares by early afternoon were up 24.75 pence at 248.75 pence. A Shell spokesman declined to comment on the thwarted bidder's next move.

The interest in Cove reflects high expectations for East Africa as a major source of energy exports after a series of significant discoveries in recent years.

Cove's key asset is an 8.5% stake in the Rovuma liquefied natural gas partnership off the coast of Mozambique. Rovuma is operated by Anadarko Petroleum Corp. and analysts at Tudor, Pickering, Holt & Co. LLC noted Wednesday that the valuation of the PTTEP offer suggests Anadarko's Mozambique assets make up about 27% of the Houston company's entire market value.

PTTEP is seeking to secure energy resources to feed Thailand's fast-growing economy, which has rebounded dramatically from last year's devastating floods and is slated to grow by up to 6.5% this year.

The Thai company, whose CEO is Tevin Vongvanich, is a major step behind Shell in meeting regulatory conditions for the bid. Shell already has the consent of the Mozambique government to assume Cove's 8.5% Rovuma stake.

Using the language of diplomacy, PTTEP said Wednesday it "is committed to be a partner to the Republic of Mozambique and the partners of the Rovuma Project" and is "dedicated to using its extensive experience in building a natural gas based economy, for the benefit of the Republic of Mozambique and its people as well as for PTTEP's shareholders."

PTTEP on Wednesday also touted its LNG credentials, billing itself as "being at the forefront of the natural gas revolution" over the past 30 years.

PTTEP's overseas exploration and operating assets are in Southeast Asia, Australia, Canada, the Middle East and Algeria. The Hague, Netherlands-based Shell already has assets in Tanzania, but a Cove takeover would take it into Mozambique and Kenya for the first time.

In addition to the offshore Rovuma stake, London-based Cove also owns a 15% interest in five offshore blocks in Kenya and 10% of the portion of the Rovuma concession located on dry land.

The first deadline for acceptances of Shell's Cove offer expired at 1 p.m. London time Wednesday and it wasn't clear if Shell would extend that offer, as had been expected. The Cove auction also drew in India's ONGC Videsh Ltd. and Gail (India) Ltd., which never named an indicative price.

If PTTEP, or any third party, prevails, Shell will get an £11.1 million breakup fee following the withdrawal of Cove's recommendation.

PTTEP plans to fund the purchase from existing cash and a new committed debt facility arranged by is adviser, UBS.

UBS's Jonathan Rowley, Philip Wolfe and Gerhard Riegler are advising Cove, whose legal advice comes from a Slaughter and May team including David Watkins, Hywel Davies and Peter Lake.

Morgan Stanley's Michael O'Dwyer, Ian Hart and Andrew Foster are advising Shell.

Standard Chartered Bank's Amer Baig, Geraldine Murphy, Rob Tims, Hein Pieter Boers and Aditya Yadav are advising Cove, alongside Cenkos Securities plc's Jon Fitzpatrick, Ken Fleming and Joe Nally.

Lawrence Graham LLP is Cove's law firm.

Bank of America Merrill Lynch's Ashwin Punde and Anya Weaving assisted ONGC and Gail.

-- Claire Poole contributed to this report.

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