Gas prospect boosts Fletcher Energy's price

By FIONA ROTHERHAM

Fletcher Energy's volatile share price rebounded yesterday on news of a potentially commercial gas find off Taranaki and projected upside in its 12 per cent stake in US company Capstone Turbine Corporation.

The stock jumped 20c by the close to 460c, still well below what the company and analysts say is the true value.

Fletcher Energy announced yesterday that preliminary evaluation of drilling of the Pohokura well off the North Taranaki coast indicated a good-sized discovery of gas in the Maui sands. The parameters of the find, if later confirmed, sit in the middle of pre-drill expectations.

The real test of its commercial viability will be when the well is opened and gas flows through in at least a couple of weeks. If it does prove commercial, it will provide New Zealand with a long-term gas supply to replace dwindling stocks. FCL Energy operates the licence area containing Pohokura and has a one-third interest.

The other positive spin for the company was an industry publication suggesting Fletcher Energy's 12 per cent stake in Capstone Turbines could be worth up to $US180 million ($377 million) which, by brokers' conservative estimates, could add around a dollar a share.

The privately held California-based research and development company is said to be considering an initial public offering. An indicative price values the company at $US1.5 billion.

Fletcher Energy paid $US11 million for a 21 per cent stake in the company in 1996 and has since invested around $US11 million in working capital. Capital raisings have diluted Fletcher Energy's holding to 12 per cent.

The investment had a book value of $20 million as at December.

Capstone is a leading developer of advanced gas-turbine-driven generator technology.

Its flagship product is the low-emission Capstone micro-turbine power-generation system, which operates either grid-connected or standalone.

Last August, Fletcher sold back the exclusive marketing rights for stationary Capstone products in all regions other than Europe, Africa and North America.

Fletcher Energy first alerted the US company to the suitability of the micro-turbine in oil and gas production.

Capstone was able to run tests at Fletcher's oil operations in Canada and New Zealand that validated the product's capabilities.