Fletcher Energy shares fail to fire

By FIONA ROTHERHAM

Fletcher Challenge Energy's share price dropped 21c to $6.25 yesterday in an apparent sale by short-term traders, despite the explorer doubling its pre-drill estimates for the Pohokura discovery off Taranaki.

Revised estimates of the field's recoverable reserves show 750 billion cubic feet of gas plus 40 million barrels of condensate. First gas deliveries are likely by early 2004.

Fletcher Challenge Energy's share price has risen a third this year since drilling began on the gas and oil find.

The share price fell 3.3 per cent yesterday after hitting a two-year high of $6.50 this week, with market punters taking quick gains before the final estimates were proven.

Pohokura is the largest gas discovery behind Maui and Kapuni. The estimated upper range of 1195 bcf of gas and 76 mmb of condensate, which has only a 10 per cent chance of being exceeded, would make it of similar size to Kapuni in gas and higher in the valuable light oil.

Fletcher Energy has declined to put a value on the reserves, but analysts said a ballpark figure was between $600 million and $800 million with uncertainty on the gas price.

FCE is operator and holds a one-third share of Pohokura. The rest is held by Pressuag (33.3 per cent), Shell (18.33) and Todd (15).

The value added to Fletcher Energy's share price is estimated at 60c, taking into account the gas supply contract with ECNZ, upheld by the High Court this month.

Analysts value the stock at around $8.

It will increase the company's appeal as a takeover target as Fletcher Challenge Group works through the restructuring of its four letter stocks.

Chief operating officer Lloyd Taylor said Pohokura was clearly a commercial discovery by virtue of the reserves established to date, high condensate yield, relatively low potential development cost and proximity to market.

The joint venture has spent $42 million so far and a further $35 million is forecast for appraisal and development studies before the green light is given on development within two years.

Development expenditure ranges from $350 million to more than $500 million depending on the ultimate recovery.

Any upside to the estimated mean reserves will predominantly come from north of the second appraisal well.

Further work is likely to include another appraisal well to confirm the field's northern extent and an on-shore well drilled out into the field to the south.