Shell awaiting green light on Fletcher deal

By FIONA ROTHERHAM

Oil giant Shell has sought Commerce Commission clearance to acquire Fletcher Challenge Energy - a move that would give it control of New Zealand's largest oil and gas field, Maui.

Shell's application includes an undertaking that it would divest around $145 million worth of NZ assets currently owned by Fletcher Energy.

It would retain a combined 87.5 per cent stake in the Maui field, which produces 70 per cent of New Zealand's oil and gas, along with interests in nearly all of the country's other fields, including the new Pohokura find off Taranaki.

Commerce Commission chairman John Belgrave said the watchdog would investigate what impact the proposal, if it went ahead, would have on competition in a range of NZ energy-related markets. It had to be satisfied that dominance in any market would not be acquired or strengthened.

Analysts say clearance will be the biggest hurdle for the sale as Fletcher Energy is already close to the dominance limit after taking control of the Kupe field.

Shell has said it would divest Fletcher Energy's 36.75 per cent stake in the undeveloped Kupe gas field, currently the subject of Commerce Commission legal action.

It would also sell Fletcher Energy's 14.2 per cent shareholding in the NZ Refining Company and its petrol retail business Challenge, which has 96 outlets nationwide.

Shell refused to say why it had offered to divest those assets over others.

"The focus of Shell's acquisition would be the exploration and production assets of Fletcher Energy, but given Fletcher Energy's diversification, there are other assets that may have to be included in the deal," said Shell New Zealand chairman Ed Johnson.

Shell emerged as the most likely bidder for Fletcher Energy after its offer for Perth-based Woodside Petroleum was rejected by Woodside directors.

Fletcher Challenge is likely to be interested only in "clean bids" for its energy division but said it was looking at all options.

Chief executive Michael Andrews said Shell's application should be seen as a "preliminary step in a long process."

The company has so far refused to confirm either the number of bids or whether the process has been closed.

It is thought that Shell, part of Europe's biggest oil firm, Royal Dutch Petroleum Co, will pay the most for Fletcher Energy.

Chevron, Envon, BP-Amoco, Unocal and Apache Energy are all believed to have done due diligence. Market rumours have Shell bidding from 850c to 915c a share, in line with analysts' valuations.

Fletcher Energy's share price leaped this month to 801c on talk of a firm Shell offer. Fletcher then moved to dampen speculation after a stock exchange query, saying it would tell shareholders when something was about to happen.

The share price moved back to $7.75 at market close yesterday.

After selling FCL Paper this year to Norske Skog, Fletcher Challenge said it would complete restructuring of its remaining building, forests and energy divisions by year's end.

Shell will want to quit Fletcher's 11 per cent stake in California-based Capstone Turbine Corporation, worth just over $1 billion on yesterday's prices.

One option would be separate Capstone and distribute those shares to existing Fletcher Energy holders.

Shell spokesman Antonius Papaspiropoulos said Fletcher Challenge wanted to be in a position to tell shareholders what was on the table, but there would be no further talks until the Commerce Commission ruling, due by September 1. Overseas Investment Commission approval has also been sought.

Fletcher Energy has $3.1 billion worth of assets, of which $1.6 billion are NZ-based.

Its overseas interests include exploration and production rights in Canada, Brunei and Argentina.

It is seeking a one-third interest in listed Australian oil and gas explorer Petroz. This $80 million deal is conditional on Petroz shareholder approval at a meeting on September 15.

Fletcher Energy is trying to sell its only other Australian asset, a 50 per cent stake in the South West co-generation project at the Worsley Alumina Plant in Western Australia.