PTTEP Left Sole Bidder for Cove as Shell Pulls Out of Race

PTT Exploration & Production Pcl (PTTEP), Thailand’s only listed oil and gas explorer, stands the sole bidder for Cove Energy Plc (COV) after Royal Dutch Shell Plc (RDSA) pulled out of the race for the East Africa-focused explorer.

Shell has “decided not to revise its offer of 220 pence in cash for each share of Cove, and not take part in the auction procedure,” The Hague-based Shell, Europe’s largest energy producer, said yesterday in a statement.

The 240 pence-a-share proposal from state-controlled PTTEP, which plans to spend about $20 billion on expansion by 2016 to triple daily output, remains the highest bid, valuing Cove at 1.2 billion pounds ($1.9 billion). PTTEP shares fell to a two- week low today on concern the company may need to raise funds to develop Cove’s asset in Mozambique.

“PTTEP will definitely have to sell new shares to fund the acquisition,” Naphat Chantaraserekul, an analyst at DBS Vickers Securities (Thailand) Co., said by phone. “Cove will also need a large investment over the next few years. This would be a negative for PTTEP in the short term.”

PTTEP slumped 1.2 percent to 171 baht at the 4:30 p.m. close in Bangkok, the lowest since June 29. PTTEP Chief Executive Officer Tevin Vongvanich declined to comment on the offer when contacted by phone today.

Cove slid 14 percent to 238 pence yesterday in London, the steepest drop since Aug. 4, as investors withdrew bets on a higher bid after a five-month takeover battle. Before Shell’s announcement, it had traded above the 240 pence offered by Bangkok-based PTTEP.

Rovuma Asset

Cove’s largest asset is an 8.5 percent holding in Mozambique’s Rovuma Area 1, where a group led by Anadarko Petroleum Corp. (APC) has found as much as 60 trillion cubic feet of recoverable natural gas, more than six times the U.K.’s existing reserves. Cove raised its estimate of the find in June.

“Assuming PTTEP can gain 90 percent shareholder approval and conclude the deal - which seems likely, PTTEP now have a stake in the world’s most promising new liquefied natural gas frontier,” Neil Beveridge, a Hong Kong-based oil and gas analyst at Sanford C. Bernstein & Co., said today in a note.

The deal would be the biggest overseas takeover by a Thai company, squeezing out Banpu Pcl (BANPU)’s 2010 acquisition of Australia’s Centennial Coal Co., which had an announced value of $1.85 billion, according to data compiled by Bloomberg.

‘In the Lead’

PTTEP is “in the lead” if it maintains its offer that was extended yesterday until July 25, said Peter Hutton, an analyst at RBC Capital Markets in London. Shell is “taking the heat out of the market” by dropping out of the auction, he said, adding that the producer had other options.

The U.K. Takeover Panel last week laid out the process for an auction to end the bidding war for Cove, whose shares have more than doubled this year. For Shell, the world’s largest manager of LNG ships and member of joint ventures supplying 30 percent of global LNG volumes last year, the acquisition offered a foothold in East Africa.

Both Anadarko and Eni SpA (ENI), local project operators in Mozambique, have said they plan to sell down part of their stakes in the fields to share development costs, which may exceed $50 billion. Cove’s discoveries open the way for Mozambique to become an exporter of liquefied natural gas, shipping fuel to Asian economies including India and China.

‘Development Capex’

“While the resource base appears prolific, we remain concerned that this acquisition could trigger a capital raise from PTTEP,” Bernstein’s Beveridge said. “PTTEP had $1.76 billion cash - end first quarter - and will not only need to fund this deal, but will also need to fund the additional exploration and development capex, plus other M&A as they seek to aggressively expand production.”

PTTEP plans to form a small bank club led by UBS AG to finance the transaction, a person familiar with the matter said last month. The banks would provide a 950 million pound 12-month bridge loan to PTTEP Offshore Investment Co., a unit of PTTEP, the person said.

PTTEP has been advised by UBS. Standard Chartered Plc has been advising Cove. Morgan Stanley acted for Shell.

To contact the reporter on this story: Will Kennedy in London at wkennedy3@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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