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Shell is unlikely to have difficulty selling its Fletcher Energy fields

By Nick Stride

Friday 24th November 2000

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Royal Dutch/Shell will have no trouble selling its "excess" Fletcher Energy assets and could find a single buyer, energy analysts say.

The Commerce Commission on Wednesday released its reasons for allowing Shell, on the second application, to buy Fletcher Energy's New Zealand gas production portfolio.

A key change from the original, declined application is an undertaking to sell 10% of the giant Maui field, coupled with a deed poll restraining Shell from voting on how Maui is run unless one of its equity partners agrees.

Todd Energy, with 6.25%, is one partner. The buyer of the 10% stake will be the other.

Another stumbling block to the original application was the 51.6% stake Shell would have held in the Pohokura field, which at present looks likely to be the key gas producer after Maui runs down around 2009.

The commission has accepted the sale of 3.7%, along with the McKee, TAWN (Tariki, Ahuroa, Waihapa and Ngaere), Mangahewa and Maui sales, guarantee Shell won't dominate the post-2009 market.

It also accepted the development of a major field such as Pohokura couldn't be financed without finding a cornerstone gas purchaser who would exert "a degree of countervailing power" when negotiating a supply contract.

A deadline has been set for Shell to dispose of the assets but it remains confidential.

Todd Energy has said it is interested in acquiring some of the assets. It has pre-emptive rights over shares in the Pohokura and TAWN fields.

Analysts said Todd might encounter opposition from the commission if it sought to buy substantial assets from Shell as the commission has previously had concerns about the close links between the two.

In the latest ruling the commission accepted Todd was "an independent head in the market" but noted their "mutual dependence." Todd, which is extending its energy operations into retail power and gas supply, has indicated it intends to take the 15% of Pohokura gas to which its equity stake entitles it.

The largest asset up for sale is the 10% Maui stake, which is expected to fetch more than $100 million.

UBS Warburg analyst Paul Richardson said that, because of the long-term offtake contracts for the field's gas, the stake was effectively a bond investment with some upside if the operators found more gas.

It formed an attractive base for a portfolio including other divested Fletcher Energy assets.

"The assets may well be sufficient to attract another player into New Zealand if they are able to get sufficient production assets and associated infrastructure." But those assets weren't easy to manage as a lot of technical work was needed to maximise recovery, Mr Richardson said.

Possible buyers included explorers already present in the New Zealand market, such as Westech and Preussag, and those who have shown an interest such as Vanco, Swift Energy, Origin Energy and Austria's OMV.

In Australia shares in Woodside Energy have been climbing on speculation Shell will launch a second bid, possibly using some of its newly acquired New Zealand assets as part consideration.

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