New Zealand regulator rejects bid for Fletcher Challenge Energy

New Zealand's Commerce Commission said Thursday it is rejecting a $4.6 billion (NZ) joint bid by the Royal Dutch/Shell Group and Houston-based Apache Corp. to acquire Fletcher Challenge Energy Ltd.

"We're very disappointed, but we plan to meet with the commission at the earliest opportunity to discuss the matter," Shell officials in London told OGJ Online. That meeting could come Friday, sources said.

Commission Chairman John Belgrave said he was concerned about Shell acquiring or strengthening dominance of natural gas and liquefied petroleum gas markets in that area. "The commission can only give a clearance if it is satisfied that a proposed acquisition would not, or would not be likely to, result in dominance being acquired or strengthened in any market," he said.

Officials at both Shell and Apache said they are hopeful that the deal can yet be saved. Shell officials say safeguards to protect consumers' interests are provided in the sales agreement.

Apache�which signed a deal with Shell this week to acquire Fletcher Challenge Energy's holdings in Argentina and Canada for $600 million (US)�is keeping a low profile while Shell handles the international negotiations (OGJ Online, Oct. 10, 2000).

But other sources indicate that both companies are fairly confident that the acquisition will be completed.

Sources also indicate that strengthening its relationship with Shell is nearly as important to Apache as the pending acquisition of Fletcher Challenge Energy's proved reserves of 713 bcf equivalent of natural gas, which amounts to roughly 12% of Apache's current proven reserve base.

That acquisition would "balance" Apache's North American gas portfolio at a price of 84�/Mcf equivalent, said Apache Pres. G. Stephen Farris in announcing the partnership agreement Monday.

"It increases our Canadian reserves by 75%, our oil and gas production there by 80% each, and our net undeveloped acreage in Canada by 200%," said Farris.

Shell would get the Fletcher Challenge Energy subsidiaries in New Zealand and Brunei.

In late August, Shell offered $2.3 billion (Aus.) for Fletcher Challenge Energy, which dominates New Zealand's petroleum industry (OGJ Online, Aug. 28, 2000). Recently spun off from the Fletcher Challenge Group, Fletcher Challenge Energy holds 68% of the country's prolific Maui gas field. Shell is operator of that field with 18.7% interest and wants a bigger share.

In a separate part of that deal, Shell would buy 1.64 million restricted shares of Apache common stock for $60.85/share, or $100 million, to be used to help fund the Fletcher Challenge Energy acquisition.

The Canadian properties are located in the provinces of Alberta, British Columbia, and Saskatchewan, and comprise some 2.4 million net acres, 60% undeveloped. Most of the properties are near Apache's existing operations in Alberta and northeastern British Columbia. Apache would operate 80% of the properties and has already identified more than 300 drilling locations.

Apache's acquisition of the Fletcher Challenge Energy properties was originally expected to close during the first quarter of 2001, subject to the usual approvals, but with an effective date of July 1, 2000. The sale of interim production by Fletcher Challenge Energy will be applied to the acquisition price, amounting to an estimated $95 million by the end of this year. Any significant delay in closing that deal could mean a bigger portion of the purchase price would be paid in production.

As part of the deal, Apache also will acquire a 25% interest in a 5,000-acre concession in Argentina's Neuquen Basin, operated by Chevron Corp. Chevron has made a discovery on that acreage that tested at a combined rate of 25 MMcfd from two wells.