Shell Pulls Out of the Running for Cove Energy

In a move that has shocked more than a few in the industry, Shell pulled itself out of the running for Cove Energy, clearing the way for PTTEP.

Shell and PTTEP have been in a bidding war for months for the small Mozambique-focused independent and analysts were sure that Shell would submit a third bid to top PTTEP’s last offer of $1.9 billion.

The battle for Cove was just about to enter the rarely used auction process, mandated by the UK Takeover Panel, to bring months of inconclusive bidding to a close. Shell said Monday it had no intention of revising its earlier offer for Cove and won't participate in the auction. The company spokesman said that Shell’s decision was a commercial one, taken after comparing the market valuation of Cove and the potential of its assets.

Shell’s exit from the running has sent Cove’s shares, which until now had been on the rise, plummeting. The firm’s share price dropped almost 14%, taking it to just below the level of PTTEP's offer, at £0.238 a share.

The pull out of Shell may not be good news for the other companies partnered with Cove in Mozambique as PTTEP does not have the deep pockets to command like Shell does. Anadarko, in an interview with Petroleum Africa earlier this year said it was looking forward to Shell joining them on Offshore Area 1, mentioning that the oil giant would be a good partner as the JV moves toward its FID in 2013.

Industry financial pundits have commented that PTTEP is over extending itself with the Cove bid. "PTT Exploration & Production (PTT E&P), as Thailand's main oil and gas producer, offers leverage, in our view, to the tight South East Asian natural gas market, high returns and robust production growth in the medium term," Barclays said in a report.

However, the report also said that the company would be a better bet if it did not move forward with the Cove bid. “With the shares trading at a 20% discount to its local market and the potential that the company does not execute its proposed bid for Cove Energy and focuses on regional exploration opportunities and/or smaller asset deals, we take a positive view.”