BG GROUP 
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LONDON (Reuters) - Royal Dutch/Shell
Both companies coveted Cove for its east African gas prospects and Shell's exit from the bid fueled talk it has found a new way to tap that market.
Cove owns an 8.5 percent stake in a Mozambique license in the Rovuma offshore basin containing gas discoveries that could be a major provider of liquefied natural gas (LNG) to Asia.
The move will have cost hedge funds dear. An auction process had been due to start this week, and Cove stock had been bid well above PTT's offer price of 240 pence a share in anticipation that Shell would raise its 220 pence offer.
PTT Exploration and Production Pcl is Asia's third-largest oil and gas explorer and Thailand's second-most valuable company, but has been overshadowed as a buyer of overseas energy assets by Chinese oil and gas groups.
Newly appointed chief executive Tevin Vongvanich told Reuters in June the firm plans to invest $2.6 billion in Southeast Asia over the next five years and was on track to triple production to 900,000 barrels per day by 2020.
"Shell Bidco has today decided not to revise its offer of 220 pence in cash for each share of Cove, and not take part in the auction procedure for Cove," Shell said in a statement.
Shell gave no reason for withdrawing, but a source familiar with the bid process said it did not want to overpay and was confident it could get into east Africa gas action by other routes.
Analysts say Europe's largest oil and gas group has other opportunities to secure access to the gas finds off Mozambique and Tanzania that were the reason for the takeover attempt.
Cove shares, which closed at 275.5 pence last week, fell 13.6 percent on Monday to finish just shy of PTT's offer at 238.5 pence after the news.
BOOSTING PRODUCTION
PTT is involved in 41 oil and gas exploration and development projects. It plans to boost production at existing fields with the start-up of the Montara field in Australia in late 2012.
Tevin said in June that Cove Energy would play a major role in helping the group achieve its production target and boost petroleum reserves to more than 10 years.
"Cove is a good asset and worth the investment," he said.
Shell has much at stake in the LNG market, hence its strong desire to get involved in potential new supplies. U.S. explorer Anadarko (>> Anadarko Petroleum Corporation) has a 36.5 percent stake in the Mozambique license, but little experience of LNG. A tie-up of some sort has long been mooted by analysts.
"I would be very surprised if they hadn't talked to everybody here," said the source, who spoke on condition of anonymity. "LNG is the hot stuff right now and Shell's investment committees are very aware of it. Something could well happen by the end of the year."
Other points of entry to East Africa for Shell could include tie-ups with Italy's ENI (>> Eni S.p.A.), which has also found gas in Mozambique, or BG Group (>> BG Group plc) and Exxon Mobil (>> Exxon Mobil Corporation), which have discoveries off the coast of Tanzania.
Shell and PTT had been heading into the first formal takeover auction for a listed British company since 2008 after the bidding war.
Britain's takeover watchdog ruled on Friday that if neither suitor had declared its current offer final before 1600 GMT on Monday, an auction would start the next day. That could have involved bids submitted to daily deadlines until a winner was found.
It was not just the hedge funds who did not see Shell's withdrawal coming.
"I was very surprised to see Shell walk," said an investment banker who was not involved in the deal. ... I think that Shell didn't want to take the risk of increasing their offer and getting trumped by PTT again. They didn't want to end up as the losers. They must have a plan B around Anadarko or one of the partners."
($1 = 0.6432 British pounds)
(Additional reporting by Andrew Callus; Editing by David Cowell, Richard Chang, Richard Pullin and Muralikumar Anantharaman)
By Sarah Young and Sophie Sassard
