07-17-2012, 06:24 AM
From yesterday's Sunday Times:
Inside the City: Shell in D-day to land Cove Energy
After a six-month takeover saga, the chief of Royal Dutch Shell has a decision to make: bump up its bid for Cove, or retreat
MUCH fretting this weekend inside the Shell Centre, the London headquarters of Royal Dutch Shell. For the past six months the oil giant has been locked in a takeover saga. The end, finally, is nigh, and chief executive Peter Voser has a decision to make.
In February, he lobbed in a bid for Cove Energy, an explorer that found the giant Rovuma gas field off the coast of Mozambique. From nowhere, PTT, Thailand’s state oil group, emerged with a richer offer. Both have taken their bids to investors. Neither has got very far.
Indeed, PTT, whose bid values Cove at 240p a share, or £1.2 billion, has drummed up “yes” votes from less than 1% of shareholders. The Takeover Panel has called time on the shenanigans. It has given Shell until 4.30pm on Tuesday to either bump up its bid or retreat. PTT then has 24 hours to respond.
It is a bizarre situation in which the only clear winners will be Cove’s shareholders.
The company, launched on a shoestring, floated at 20p in 2009. On Friday it closed at 276p, 15% better than the Thais have offered. Clearly, investors are betting Shell is going to dig a bit deeper.
But it is a dangerous situation for Shell. Virtually all of Cove’s value is in an 8.5% stake in the Rovuma field, which has enough gas to supply Asian customers for decades.
Cove is a foot in the door of the huge project. Shell, however, won’t stop there. It wants to increase its stake to as much as a third, and possibly take control of the multi-billion-dollar development. So whatever price Cove ends up going for will set the floor from which its partners in Rovuma will start their negotiations. In other words, Shell is in danger of bidding against itself in the future.
Anadarko Petroleum, the American driller, holds the largest stake at 37%. Videocon and Bharat Petroleum, both of India, are also likely sellers. For now, they are standing gleefully by while PTT and Shell slug it out.
Cove, however, is not the only option. I understand Shell has begun talks with Anadarko — it could buy a stake and get in through the side door even if PTT wins. PTT’s rationale, meanwhile, is difficult to understand.
The deal is driven by the country’s desire for energy security. Cove’s measly 8.5% of Rovuma would increase Thailand’s gas reserves by a whopping 50%. Yet there is no guarantee that the country would receive the gas. Any supply deals would have to be negotiated at arm’s length with PTT’s sister trading company.
Which begs the question: what does £1.2 billion buy the Thais aside from a hedge on future price rises?
Whoever ends up buying Cove is really purchasing an obligation to spend billions to bring the big find into production. That is not of concern to Cove investors. They are already looking at a very healthy return since Shell kicked off the bidding at 195p. Except for the hedgies who have bought in hoping for one last flurry of action, anything beyond 240p will be gravy.
And who knows, Shell could break the bank. It has form. It splashed out for Enterprise Oil a decade ago, Duvernay Oil in Canada in 2008, and Australia’s Arrow in 2010. With the benefit of hindsight, all of the above look . . . generous.
danny.fortson@sunday-times.co.uk
Inside the City: Shell in D-day to land Cove Energy
After a six-month takeover saga, the chief of Royal Dutch Shell has a decision to make: bump up its bid for Cove, or retreat
MUCH fretting this weekend inside the Shell Centre, the London headquarters of Royal Dutch Shell. For the past six months the oil giant has been locked in a takeover saga. The end, finally, is nigh, and chief executive Peter Voser has a decision to make.
In February, he lobbed in a bid for Cove Energy, an explorer that found the giant Rovuma gas field off the coast of Mozambique. From nowhere, PTT, Thailand’s state oil group, emerged with a richer offer. Both have taken their bids to investors. Neither has got very far.
Indeed, PTT, whose bid values Cove at 240p a share, or £1.2 billion, has drummed up “yes” votes from less than 1% of shareholders. The Takeover Panel has called time on the shenanigans. It has given Shell until 4.30pm on Tuesday to either bump up its bid or retreat. PTT then has 24 hours to respond.
It is a bizarre situation in which the only clear winners will be Cove’s shareholders.
The company, launched on a shoestring, floated at 20p in 2009. On Friday it closed at 276p, 15% better than the Thais have offered. Clearly, investors are betting Shell is going to dig a bit deeper.
But it is a dangerous situation for Shell. Virtually all of Cove’s value is in an 8.5% stake in the Rovuma field, which has enough gas to supply Asian customers for decades.
Cove is a foot in the door of the huge project. Shell, however, won’t stop there. It wants to increase its stake to as much as a third, and possibly take control of the multi-billion-dollar development. So whatever price Cove ends up going for will set the floor from which its partners in Rovuma will start their negotiations. In other words, Shell is in danger of bidding against itself in the future.
Anadarko Petroleum, the American driller, holds the largest stake at 37%. Videocon and Bharat Petroleum, both of India, are also likely sellers. For now, they are standing gleefully by while PTT and Shell slug it out.
Cove, however, is not the only option. I understand Shell has begun talks with Anadarko — it could buy a stake and get in through the side door even if PTT wins. PTT’s rationale, meanwhile, is difficult to understand.
The deal is driven by the country’s desire for energy security. Cove’s measly 8.5% of Rovuma would increase Thailand’s gas reserves by a whopping 50%. Yet there is no guarantee that the country would receive the gas. Any supply deals would have to be negotiated at arm’s length with PTT’s sister trading company.
Which begs the question: what does £1.2 billion buy the Thais aside from a hedge on future price rises?
Whoever ends up buying Cove is really purchasing an obligation to spend billions to bring the big find into production. That is not of concern to Cove investors. They are already looking at a very healthy return since Shell kicked off the bidding at 195p. Except for the hedgies who have bought in hoping for one last flurry of action, anything beyond 240p will be gravy.
And who knows, Shell could break the bank. It has form. It splashed out for Enterprise Oil a decade ago, Duvernay Oil in Canada in 2008, and Australia’s Arrow in 2010. With the benefit of hindsight, all of the above look . . . generous.
danny.fortson@sunday-times.co.uk