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Shell outgunned again as bidding war for Cove hots up - UPDATE

Published: 10:50 23 May 2012 EDT

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The battle for East African oil and gas assets was reignited today as global giant Shell was gazumped by a rival bidder in its quest to secure Cove Energy (LON:COV).

Thai energy group PTT Exploration and Production has made a £1.22 billion cash offer for the East-Africa focused junior.

Cove is now backing PTT’s 240 pence a share bid, just hours before shareholders decide whether to take Shell up on its 220 pence a share offer.

Cove chief executive John Craven said: “The bid from PTTEP represents significant value for shareholders and confirms the world class nature of Cove's East African assets.”

Cove put itself up for sale at the start of the year and received an initial offer of 195 pence a share from Shell in February.

Having already matched PTT’s offer last month, Shell will now have to do the same again if it is to get its hands on the highly prospective assets.

The Anglo-Dutch firm is looking to bolster its interests in liquefied natural gas (LNG), a specialist sector in which it is already a leading player.

Broker Westhouse Securities said that while Shell may yet table a higher bid, it thinks this is "unlikely" and sees PTT prevailing.

Investec, on the other hand, reckons Shell has the flexibility to improve its offer to around 300 pence a share based on the recent resource upgrade alone.

Analyst Stuart Joyner added: “We believe the current price of 247p implies a discount for the risk that the Mozambique government does not create a level playing field to all bidders.

“While in our view this would of course be inadvisable for a government of an emerging oil nation, this will probably continue to be a concern until there is more clarity that PTT will receive the change of control approval.”

Cove’s main asset is its 8.5 per cent stake in the world class Rovuma Basin offshore Mozambique, where huge gas discoveries have been made recently.

In the latest success for the company, the Anadarko-operated Golfinho exploration well showed a recoverable resource of 17 to more than 30 trillion cubic feet of gas, which the consortium is looking to develop as a LNG project.

The region has been a hotbed of activity, attracting the attention of oil giants, such as BG (LON:BG.) and Exxon (NYSE:XOM).

Last month, authorities in Mozambique announced that a 12.8 per cent tax will apply to the capital gains from any future sale of the company.

Analysts at the time said this would pave the way for a deal to be struck as the rate was better than expected.

Shares in Cove rose 24.8 pence, or 11.1 per cent, today to stand at 248.8 pence.

 

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