Last updated: February 28, 2012 7:25 pm

Indian consortium set to table Cove bid

Two state-owned Indian energy companies have created a consortium to acquire Africa-focused gas explorer Cove Energy, following earlier bids from Royal Dutch Shell and PTT Exploration.

The state-backed Oil & Natural Gas Corporation and Gail India, a government-run gas transmission company, confirmed in a joint statement that they were considering a bid, although as yet “no decision has been made”.

The statement follows a 195p-a-share approach last Wednesday from Royal Dutch Shell which valued Cove at nearly £1bn. That was followed on Friday by a counter-offer from PTT Exploration, the state-controlled Thai energy group, pitched at 220p a share, tipping Cove’s valuation to £1.12bn ($1.8bn).

Shares in Cove rose to 240p in expectation of a higher offer than PTT’s proposed bid emerging, though the Indian consortium declined to comment on speculation that it was preparing an approach at 245p.

London-quoted Cove owns an 8.5 per cent stake in Offshore Area 1, a large gas field in Mozambique’s Rovuma basin in which US oil group Anadarko holds a 36.5 per cent stake.

A third Indian state-backed company, Bharat Petroleum Corp, already owns a 10 per cent stake in the block. Videocon Industries, a private Indian conglomerate, owns a further 10 per cent stake.

Were the ONGC-Gail consortium to succeed with an offer, it would take the total stake owned by Indian groups in the field to 28.5 per cent.

The discovery – and nearby finds by Eni of Italy – suggest the fields off the coast of Mozambique may contain as much as 60tn cubic feet of natural gas – enough to support a major liquefied natural gas project that could become a key supply source for the fast-growing energy markets of China and India.

But stakeholders in the field will also be required to back an investment of up to $20bn to exploit Mozambique’s offshore gas discoveries fully.

Analysts suggested that looming oil and gas shortages in India could prompt its government to encourage state-owned energy companies to seek new sources of supply abroad.

Abhinav Goel, senior director of energy and utilities at Fitch in Mumbai, said: “While India is attempting to increase gas production domestically, supply shortage will persist given increasing energy demand, which is why its state-owned companies have begun to look more aggressively overseas.”

The possibility of greater shortfalls in India follows domestic production snarl-ups, most notably delays in the large KG-D6 natural gas block owned by billionaire Mukesh Ambani’s Reliance Industries, in which BP is also an investor.

Indian gas demand is set to more than double over the decade, from 177m standard cubic feet a day in 2011 to 410m in 2020, far outstripping increases in domestic supply, according to ICRA, a research and rating company.

PTT’s competing interest is also premised on Thailand’s growing demand for imported liquefied natural gas. PTT operates a large network of gas transmission pipelines including an LNG importation terminal servicing Thailand’s demand for natural gas.

A PTT spokesman in Bangkok said the company had been surprised to see news agency reports on a counter-bid proposal by the Indian companies. PTT’s bid for Cove remained “on track” ahead of Cove’s February 29 deadline for bid proposals, she added.

State-controlled PTT, which is Thailand’s only listed oil and gas company, said this week it expects strong competition for Cove from international rivals.

The Indian two groups have previously considered participating on similar consortium energy bids, including an ultimately unsuccessful move in 2011 to acquire a stake in a large Kazakh Caspian Sea oilfield from ExxonMobil.

ONGC Videsh, the overseas investment arm of ONGC participating in the consortium, owns assets in more than a dozen countries, including Kazakhstan, Venezuela and Brazil.

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