Soothing comments by Royal Dutch Shell that it is optimistic it can satisfy Commerce Commission concerns about its purchase of Fletcher Energy have fallen on deaf ears.
Normally such a statement from a multinational such as Shell would be viewed positively as it has its reputation at stake.
But the market hardly moved yesterday - rising only a modest 14c.
At 824c, the Fletcher Energy price is still a long way from the $11.22 a share that Shell's bid indicates.
If you take account of the fall in the New Zealand dollar, the bid price is equivalent to $11.34 a share.
The reason for this huge discount is simple - it's a case of once bitten, twice shy.
On the back of last Tuesday's announcement of Shell's $4.6 billion bid, Energy's share price raced up to just over $10 before settling to about 940c. The view was that the pair would not have revealed the bid if they weren't confident it would succeed.
That confidence was shattered two days later when the commission knocked back Shell's application on the basis of dominance in New Zealand's gas market.
So share-buyers will remain sceptical until the deal is done.
Shell is confident it can find a way to complete the purchase. It is not deterred by the findings in the commission's 72-page document rejecting its bid.
Certainly, the commission's tone was not hostile. It basically agreed that the merged Shell Fletcher Energy entity would be constrained by existing contracts, new fields and by joint-venture parties.
But the commission was not convinced Shell-Energy would not dominate the local gas market both now and in future.
The onus is on the applicant to satisfy the commission that there will not be dominance in any market. When you have large industry players coming together it is a tough test to meet.
Whatever the arguments, we should not lose sight of the fact that there is a real need for this country to encourage gas exploration. Based on current use, there is only two to three years' supply from untapped known reserves once Maui runs out in 2009.
The reality is that New Zealand is such a small market there is probably only room for one or two fields to be in production to satisfy demand.
So dominance in such a small market is always going to be hard to avoid.
Apart from regulatory constraints, another big issue for Shell is timing, because of the pressure to restructure the Fletcher Challenge companies.
If Fletcher's separation timetable is to be met, Shell will need to convince the commission by early December.
Links
The commission's report
<i>Between the lines:</i> Shell bid loses its lustre
AdvertisementAdvertise with NZME.