Cove hits the jackpot
Published 25/02/2012 | 05:00
After quitting Petroceltic, which he founded in 2009, revenge is sweet for John Craven as bidders joust for gas assets
This week's competing bids for Irish exploration company Cove Energy line up a payday of up to €24m for its veteran chief executive John Craven.
After more than 30 years in the exploration business, John Craven has become an overnight success. On Wednesday, oil and gas giant Royal Dutch Shell made a recommended £992m (€1.17bn) offer for Cove Energy the Irish-based exploration company headed up by Mr Craven.
Then yesterday Thailand's PTT Exploration topped Shell with a £1.12bn (€1.32bn) offer for Cove.
Shell is offering 195p (€2.30) cash per share for Cove, while PTT is offering 220p (€2.60). With Cove trading at 237p (€2.80) yesterday, the market is clearly expecting Shell to come back with a higher bid.
Even under the terms of the PTT offer, the company's directors will receive a total of £42.8m (€50.5m) for their shares with Mr Craven himself set to pocket £20.3m (€24m).
Other shareholders will also do very nicely thank you very much. As recently as June 2009 the company issued shares for just 12p (14.2 cent) when it raised £4.2m while in September of that year it raised another £42m (€49.5m) at 20p per share.
As a result of these early share issues it is estimated that, in addition to the company's management with about 5pc of the company, other Irish investors own approximately 10pc of Cove and stand to gain approximately £110m (€130m) from the PTT offer.
While Mr Craven's success at Cove comes after less than three years at the company, he has almost 35 years' experience in oil and gas exploration.
A native of Brighton on the south coast of England, Mr Craven graduated from Queen's University in Belfast with a degree in business and geology before going on to receive a master's degree in geology from Imperial College London.
Mr Craven, who originally came to Ireland with Gulf Oil to explore for offshore oil and gas more than 30 years ago, established his reputation with another Irish-based exploration company Petroceltic, which he founded in 1991. During his time at Petroceltic, the company discovered a promising gas field in Algeria.
In the oil and gas exploration business, the normal pattern is that the initial discoveries are made by small independents such as Cove or Petroceltic.
Then, as the costs of extracting the energy from the ground and shipping it to market begin to mount up, they either introduce one of the "majors" as a partner or, as in the case of Cove this week, sell out altogether.
By early 2009, Petroceltic was on the point of commercialising its Algerian gas field. Complicating matters was the fact that the company's board was split on whom to do a deal with. Mr Craven wanted to introduce German utility company E.ON as a partner, while most of the rest of the Petroceltic board favoured the Italian power generator Enil.
Unfortunately for Mr Craven, the board decided in favour of Enil. Suddenly in March 2009, after almost two decades, he was out of the company he had founded.
Still, you can't keep a good man down for long. One of the peculiarities of the Dublin equity market is that, after more than four decades of energy and mineral exploration in this country, there is a hard core of investors prepared to invest in exploration stocks.
This meant that, following his departure from Petroceltic, Mr Craven was able to tap into a well-established network to fund his next venture.
By early 2009, exploration company Lapp Plats was going nowhere fast. It had listed on the Irish Stock Exchange's small companies market, the Irish Enterprise Exchange, in 2005 but had failed to light up the corporate firmament.
However, it provided Mr Craven with a perfect "shell" company. He paid €280,000 for a 25pc shareholding in the company and renamed it Cove Energy. Within a few months, Cove had raised over £46m (€54m) from investors. Mr Craven was back in the exploration business.
Among the early backers of the infant Cove Energy were two of the original Petroceltic investors, Tommy O'Gorman and Gerard Walsh; former Lapp Plats chief executive Michael Nolan, who became Cove's finance director; and Michael Blaha, the former head of Shell's Algerian operations, who became executive chairman.
Mr Craven's strategy for Cove was to identify promising oil and gas exploration acreage held by financially distressed companies in areas that had either been overlooked by the majors or were no longer active.
It would then develop these assets to a stage where they could be commercialised, at which point it would sell out to one of the big boys.
Given his previous experience, it was hardly surprising that Mr Craven concentrated Cove's efforts on Africa and the Mediterranean.
His opportunity came even sooner than he might have expected.
Artemis, another small exploration company, had discovered a potential natural gas field off the coast of the East African state of Mozambique.
However, it lacked the cash to firm up and develop this field and faced being gradually squeezed out by its partner, the American oil and gas company Andarko -- which is, of course, Tullow's partner in West Africa.
Having studied the Artemis geological data, Mr Craven became convinced that there was a major gas field off the Mozambican coast.
Cove cut a deal with Artemis, allowing it to "farm-in". It helped that Mr Craven was friendly with several senior Andarko executives, so they were happy to partner with Cove.
Oil and gas exploration may be a global business but success depends on building contacts with a relatively small number of key players.
The result was that Cove picked up an 8.5pc stake in a series of natural gas fields -- Windjammer, Barquentine, Lagosta and Tubarao -- which between them had total reserves of up to six trillion cubic feet of gas.
That's six times the size of the Corrib gas field off the coast of Co Mayo. Cove had hit the jackpot big time.
Even before the Shell deal, this success was reflected in the Cove share price. It was trading at 112p by early January and had climbed to 150p in advance of the announcement of this week's deal.
In the space of less than three years, Mr Craven had transformed Cove from a minnow into a company with a market capitalisation of close on a billion euro, an achievement that dwarfs anything he did at Petroceltic.
By comparison, his old firm Petroceltic had a market capitalisation of just €237m this week. Who says revenge isn't a dish best served cold?
Following his success with Cove, what will Mr Craven do for an encore?
A trim 61-year old, he played cricket with the Leinster Cricket Club until he was 50 and still plays tennis and jogs to keep fit.
This makes it unlikely that he will retire to drink his cup of Complan any time soon.
Far more likely is that, with the Shell windfall under his belt, he will seek out new opportunities.
With his track record, he won't be short of backers for whatever he chooses to do next. He has already stated his belief that offshore Ireland is due a renaissance, so don't be surprised if his next incarnation involves exploring for oil and gas closer to home.
This would represent a case of the wheel turning full circle. Having originally come to this country to explore for oil and gas but eventually making his fortune from a gas discovery half a world away, will he now return to where he first started?