February 28, 2012 / 1:00 PM / 8 years ago

Indian group may trump Shell's gas bid for Cove Energy

MUMBAI (Reuters) - A consortium of Indian public-sector energy companies said they may join a bidding war for Africa-focused gas explorer Cove Energy COVE.L, becoming the second Asian state-run group seeking to trump Shell’s (RDSa.L) $1.6 billion offer.

A last-minute offer from Oil and Natural Gas Corp (ONGC.NS) and GAIL India (GAIL.NS) would pit them against Thai oil and gas group PTT PTTE.BK and Royal Dutch Shell Plc in a race for the London-listed company’s promising gas reserves in Mozambique.

“Given the potential of the asset, it would be a good acquisition,” said Manish Sonthalia, fund manager at Motilal Oswal AMC, who doubted funding would be a problem.

“Shell is also bidding, so you have that much comfort on the asset and its potential.”

Shell had hoped to make a pre-emptive move for Cove’s prize among hot East Africa gas prospects by offering 195 pence per share for the company earlier this month, a 70 percent premium to the share price when Cove put itself up for sale on January 5.

But Thailand’s PTT beat that last Friday with a 220 pence bid, or $1.77 billion, and while analysts had doubts about the Indian firms’ prospects, their interest highlights a quickening scramble for natural resources for fast-growing Asian economies.

Cove’s main asset is an 8.5 percent stake in Mozambique’s Rovuma Offshore Area 1, where another operator Anadarko APC.N said recoverable reserves could top 30 trillion cubic feet of natural gas — equal to nearly half of Canada’s proved reserves.

India’s Bharat Petroleum Corp (BPCL.NS) and Videocon Industries Ltd (VEDI.NS) each own a 10 percent stake in the Rovuma block.

ONGC Videsh Ltd, the overseas investment arm of India’s biggest oil and gas producer ONGC, and GAIL said they had made no decision on whether to bid for Cove, or on any terms.

The statement was in response to a Tuesday report by the Times of India newspaper, citing sources familiar with the matter, that the consortium could make a combined bid this week valuing Cove at 245 pence a share.

Cove’s shares have surged since Shell’s offer on February 22, fuelled by anticipation of a bidding war.

The shares, which rose 1.8 percent on Tuesday to 239 pence, have more than doubled since the company’s January 5 announcement of a sale process and are up more than 50 percent since Shell announced its bid.


The Indian consortium’s interest mirrors efforts by Indian steel, power and coal companies to scout for overseas coal mines to satisfy demand from the fast-growing economy, Asia’s third largest.

But state-run companies such as Coal India (COAL.NS), GAIL and ONGC have not been particularly successful in closing large overseas acquisitions in recent years and have shied away from bidding wars despite sitting on huge piles of cash.

“They are very cautious in their approach and it takes a lot of time for them to take government approvals while their rivals elsewhere make quick decisions,” said Juergen Maiar, a Vienna-based fund manager with Raiffeisen Euroasien Aktien.

“Indian public sector firms like ONGC need to look for assets overseas to improve their production capacity but they haven’t been very successful in this yet,” said Maiar, who manages $300 million worth of Indian stocks including ONGC.

An Indian state consortium of five companies in January last year decided not to counter Rio Tinto’s (RIO.AX) (RIO.L) $3.9 billion bid for Australian coal miner Riversdale RIV.AX, after hiring a consultant and spending weeks weighing bid options.

ONGC’s attempts to put off an agreed purchase of Imperial Energy in 2008, after oil prices collapsed and the sale price looked high, also undermined perceptions of Indian firms as committed buyers, analysts said. Chinese companies have a strong track record of successfully executing overseas acquisitions.

ONGC, which accounts for 79 percent of India’s oil and gas production, said last month it was in discussions with U.S. energy major ConocoPhillips (COP.N) for a business partnership but talks were at a very nascent stage.

The company gave no details on the talks but media reports said they involved joint exploration in India and abroad.

The emerging battle over Cove reflects intense industry interest in East Africa, a previously little-explored area which is tipped to become a major natural gas producing region.

Energy companies are eyeing growing demand in Asia’s fast-growing economies as well as in Japan, where gas imports have climbed as its nuclear reactors sit idle, unable to restart after routine maintenance given public safety fears stirred by the Fukushima nuclear crisis.

($1=0.6313 British pounds)

Additional reporting by Nandita Bose in MUMBAI and Tom Bergin in LONDON; Editing by Edmund Klamann

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