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Fletchers Energy - Quarterly Production

QUARTERLY PRODUCTION ANNOUNCEMENT
FOR THE PERIOD ENDED 30 JUNE 2000


1 Highlights

 Full year production of 48.9 mmboe; an increase of 6.1 per cent on the previous year.
 Maui gas annual sales increased 15 per cent over the previous year, driven by continued strong gas demand from the electricity and methanol sectors.
 Record gas production in Canada with sales of 53.7 bcf for the year; a 5.5 per cent increase over the previous year.
 Pohokura-2 tested 30.7 mmscf/d of gas and 2,670 bbl/d. Following the discovery well, this appraisal success contributed to the booking of 131 bcf and 6 mmbl of proved reserves net to Fletcher Challenge Energy.
 Development activity began on the newly acquired heavy oil properties in Saskatchewan.
 First full financial year of production completed in Brunei.

2 Sales

Sales June
Quarter
FY 2000 June
Quarter
FY 1999
YTD
FY 2000
YTD
FY 1999

Natural Gas (bcf)
NZ Offshore (1) 28.4 23.7 112.1 97.7
NZ Onshore 4.3 4.4 17.1 17.0
North America 13.4 13.4 53.7 50.9
Brunei 3.6 2.9 14.9 3.4
Total 49.7 44.4 197.8 169.0

Condensate (000 bbls)
NZ Offshore 1,532 1,147 5,108 5,272
Brunei 144 16 366 16
Total 1,676 1,163 5,474 5,288

Oil (000 bbls)
NZ Offshore 328 831 1,659 3,025
NZ Onshore 535 729 2,362 3,150
North America 1,312 1,232 5,194 5,233
Total 2,175 2,792 9,215 11,408

LPG (000 tonnes)
NZ Offshore 25 26 105 102
NZ Onshore 5 2 19 17
Total 30 28 124 119

Total Sales (mboe) (2)
NZ Offshore 6,843 6,195 26,498 25,607
NZ Onshore 1,298 1,488 5,399 6,159
North America 3,554 3,460 14,152 13,714
Brunei 747 502 2,852 585
Total 12,442 11,645 48,901 46,065
(1) Pre-paid gas treated as not yet produced
(2) A conversion factor of 6bcf:1mmboe is utilised in calculating the oil equivalence of gas

Because of movements in oil and condensate inventory levels, the sales numbers disclosed above do not always necessarily reflect actual production. Where these movements have been material production numbers are disclosed in the following table.

Production


Total Production June
Quarter
FY 2000 June
Quarter
FY 1999
YTD
FY 2000
YTD
FY 1999

Condensate (kbbls)
NZ Offshore 1,295 1,197 5,217 5,382
Brunei 131 50 396 65
Total 1,426 1,247 5,613 5,447

Oil (kbbls)
NZ Offshore 392 574 1,739 2,963
NZ Onshore 476 729 2,230 3,150
North America 1,312 1,232 5,194 5,233
Total 2,180 2,535 9,163 11,346

Total Production (mboe)
NZ Offshore 6,670 5,988 26,688 25,655
NZ Onshore 1,239 1,488 5,266 6,159
North America 3,554 3,460 14,152 13,714
Brunei 734 536 2,882 634
Total 12,197 11,472 48,988 46,162
Daily Sales


Average Daily Sales June
Quarter
FY 2000 June Quarter
FY 1999
YTD
FY 2000
YTD
FY 1999

Natural Gas (mmscf/day)
NZ Offshore 312 260 306 268
NZ Onshore 47 48 47 47
North America 148 147 147 139
Brunei 40 32 41 31
Total 547 487 541 485

Condensate (bopd)
NZ Offshore 16,832 12,604 13,956 14,444
Brunei 1,582 176 1,000 147
Total 18,414 12,780 14,956 14,591

Oil (bopd)
NZ Offshore 3,604 9,132 4,532 8,288
NZ Onshore 5,884 8,011 6,455 8,630
North America 14,418 13,544 14,191 14,334
Total 23,906 30,687 25,178 31,252

LPG (tonnes/day)
NZ Offshore 270 286 285 279
NZ Onshore 59 22 53 47
Total 329 308 338 326

Total Sales (boe/day)
NZ Offshore 75,198 68,077 72,399 70,156
NZ Onshore 14,266 16,352 14,750 16,874
North America 39,049 38,022 38,667 37,572
Brunei 8,209 5,516 7,793 5,367
Total 136,722 127,967 133,609 129,969
3 Production and Development Activities
(i) New Zealand Offshore

Very strong Maui gas sales continued. Maui gas sales for the June quarter 2000 were 28.4 bcf, up 4.7 bcf or 20 per cent against the comparative 1999 quarter. This also represents an increase of 2.1 bcf or 8 per cent over sales during the preceding quarter.

In total, gas sales for the 2000 financial year reached 112.1 bcf, 14.4 bcf or 15 per cent higher than the previous financial year. This increase is the result of continuing strong demand from Methanex and electricity generators. The outlook remains positive for continuing strong gas demand into the new financial year.

Condensate sales were 1.532 mmbl for the quarter, an increase of 0.385 mmbl or 34 per cent over the corresponding 1999 quarter. This amounts to an increase of 0.399 mmbl or 35 per cent over the preceding quarter. Increased condensate production is a direct result of the increased gas production, partially offset by declining condensate-to-gas ratios.

Oil sales from Maui were 0.328 mmbl, a decrease of 0.305 mmbl or 48 per cent relative to the previous quarter. On a year over year quarterly comparative basis, the decrease in sales volume amounted to 0.503 mmbl (60 per cent). Two factors contributed to this decrease in sales; natural field decline and inventory build. During the June quarter, production of 0.392 mmbl was achieved, a reduction of 0.182 mmbl (32 per cent) compared to the corresponding quarter in 1999.

Disappointing drilling performance in the Maui BD incremental oil development programme has resulted in a five month project delay, with first oil now anticipated in August.

(ii) New Zealand Onshore

Oil sales for the quarter were 0.053 mmbl, an increase of 11 per cent on the previous quarter due to the timing of liftings. Onshore oil production of 0.476 mmbl for the quarter was 0.031 mmbl or 6 per cent lower than that of the previous quarter. On a year over year quarterly comparative basis, the production decrease was 0.253 mmbl or 35 per cent.

LPG sales (onshore and offshore) for the quarter were 29,939 tonnes, an increase of 3,000 tonnes (11 per cent) compared to the previous quarter. This represents an increase of 1,911 tonnes (7 per cent) compared to the corresponding quarter of 1999.

FY2000 LPG sales totalled 123,708 tonnes, an increase of 4,718 tonnes or 4 per cent compared to the previous year.
The primary development activity undertaken during the quarter was the drilling of McKee-9A, which was successfully completed as an oil producer currently contributing 800 bbl/day to onshore production.

(iii) Canada

Gas production continued to grow in Canada, taking advantage of the strong North American gas price environment. Record full year gas sales of 53.7 bcf were up 5.5 per cent on the previous year.

Gas production for the June quarter averaged 148 million cubic feet per day, a decrease of 3 per cent on the previous quarter and an increase of 1 percent on the corresponding period in the prior year. Scheduled downtime at St Albert reduced Central District production for the quarter. In the Provost District, a successful workover at Halkirk added production of 700 mcf/day.

Oil production for the fourth quarter averaged 14,418 bopd, a decrease of 6 per cent from the previous quarter, and up 6 per cent from the corresponding period in the prior year. Heavy oil development activity continues to increase with global oil prices remaining strong. The ten-well programme at Hayter in the Saskatchewan District was successfully completed with all wells tied in and producing 500 bbls/day. Development drilling has already commenced at Baldwinton, part of the properties acquired in the C$23.25 million asset acquisition from UPRI. Ten development wells were successfully drilled in Baldwinton during June. The wells are expected to be on production in August. In the Central District, a new well at Mikwan came on stream, producing 240 bbls/day.

(iv) Brunei

Gas sales for the June quarter averaged 40 million cubic feet per day. Total gas sales for FY2000, the first full year of production from Maharaja Lela, were 14.9 billion cubic feet (17.15 PJ).

Liquids sales for the June quarter averaged 1,582 barrels per day. This was the highest quarterly rate for FY2000. The higher sales volume was made possible by increased oil rates from a well that had previously been gas-constrained. Total liquids sales for FY2000 were 366,000 barrels.

4 Exploration and Appraisal Activities

(i) New Zealand

The Pohokura-2 appraisal well was drilled during the quarter, with equipment constrained test flow rates of up to 30.7 mmscf/d of gas and 2,670 bbl/d of condensate. The field is estimated to contain mean reserves of 750 bcf and 40 mmbl of condensate, of which 393 bcf and 17 mmbl of condensate are considered to be Proven. FCE's interest in the field is 33.3 per cent.


(ii) Canada

Fletcher Challenge Energy Canada drilled 3 successful net exploration wells during the quarter, of which all 3 were completed as gas producers. In addition, 12 successful development wells were drilled, of which 6 were completed as oil wells and 6 as gas wells.


(iii) Brunei

An offshore exploration drilling programme in Blocks A and CD was approved by the FCL Board in February and commenced on 15 April 2000.

By 20 July three wildcat wells (BSA-1, LKU-1 and EE-1) had been drilled, evaluated and abandoned at a net cost to Fletcher Challenge Energy of US$2.7 million. This marks the completion of Unocal’s earning activities under the 1997 farm-down.

Well BSA-1 was a sub commercial gas discovery. Drilling performance during the campaign was exceptional with the three wells each being drilled for approximately half the cost of similar wells previously drilled in Brunei.

The valuable geological information gained from the three wells will be incorporated into a review of the remaining inventory of over 30 prospects and leads. A decision on further drilling investment will be made following completion of the review in early 2001. Subject, however, to reaching agreement with the government on commercial terms for gas exploration, further drilling is under consideration for late 2001.


(iv) Argentina

Work continues on development options for the Las Bases and Estancia El Colorado discoveries in Block CNQ 16/A.
A summary of exploration and development costs incurred during the quarter is set out in the following table:

NZ$ ‘000s Exploration Costs Development Costs

NZ Offshore 8,832 13,644
NZ Onshore 14,771 5,010
North America 8,803 8,929
Brunei 3,467 -1,383
South America 712 -
Total 36,585 26,200

Note: Fletcher Challenge Energy accounts for exploration expenditure on a successful efforts basis with unsuccessful exploration expenditure being written off rather than capitalised. Expenditure classified as “Exploration Costs” associated with successful exploration efforts will be capitalised in Fletcher Challenge Energy’s financial statements.

5 Risk Management
In line with Fletcher Challenge Energy’s stated risk management policy the following positions are current in the forward markets. FY00 includes the full year position from July 1999.

OIL AND CONDENSATE
FY 00 FY 01 FY 02 FY 03
WTI Put Options
Volume (mmbbls) 1.80 4.00 1.35
Average Strike US$/bbl 17.70 17.87 18.00
Average Premium US$/bbl 1.68 0.86 0.53
Quarterly settled, deferred premium Asian options

WTI Swaps
Volume (mmbbls) 8.51 2.10
Average Strike US$/bbl 16.52 15.59

WTI Collars
Volume (mmbbls) 1.56 2.28 2.28
Floor US$/bbl 16.00 18.00 18.00
Ceiling US$/bbl 21.00 21.00 21.00
Average Premium US$/bbl 0.39 0.86 0.86
Quarterly settled, deferred premium Asian options

Tapis Collars
Volume (mmbbls) 0.72 0.72
Floor US$/bbl 18.00 18.00
Ceiling US$/bbl 21.00 21.00
Average Premium US$/bbl 0.60 0.60
Quarterly settled, deferred premium Asian options

Tapis Differential
Volume (mmbbls) 3.65 1.20
Average Strike US$/bbl 0.00 -0.05
Represents the discount to WTI that Tapis product receives (negative means Tapis > WTI)

LLK Differential
Volume (mmbbls) 0.37 0.18
Average Strike US$/bbl 5.37 5.50
Represents the discount to WTI that LLK product receives

LLG Differential
Volume (mmbbls) 0.14
Average Strike US$/bbl 4.55
Represents the discount to WTI that LLG product receives

Bow River Differential
Volume (mmbbls) 0.25 0.11
Average Strike US$/bbl 3.81 3.95
Represents the discount to WTI that Bow River product receives

LLG Differential Floor
Volume (mmbbls) 0.27 0.28
Average Strike US$/bbl 4.80 4.80
Represents the maximum discount to WTI that LLB receives

BRUNEI NATURAL GAS

Dubai Collars
FY 00
FY 01
FY 02
FY 03
Volume (mmbbls) 0.72 0.96 0.96
Floor US$/bbl 16.63 16.63 16.63
Ceiling US$/bbl 19.63 19.63 19.63
Average Premium US$/bbl 1.00 1.00 1.00
Dubai instruments are used to manage our Brunei gas price exposure

CANADIAN NATURAL GAS
FY 00 FY 01 FY 02 FY 03

NYMEX Swaps
Volume (PJ) 11.58 7.66 3.89
Average Strike US$/mmbtu 2.33 2.33 2.33

NYMEX Collars
Volume (PJ) 3.89
Average Floor US$/mmbtu 3.00
Average Ceiling US$/mmbtu 3.39
Average Premium US$/mmbtu 0.23

AECO Swaps
Volume (PJ) 23.81 21.90 14.64 3.69
Average Strike C$/GJ 2.21 2.29 2.69 3.09

AECO Put Options
Volume (PJ) 7.29 3.69 7.26 3.07
Average Strike C$/GJ 2.95 2.95 3.15 3.15
Average Premium C$/GJ 0.29 0.29 0.38 0.38

AECO Differential
FY00 FY01 FY02 FY03
Volume (PJ) 1.44 11.66 15.40 21.78
Average Strike US$/mmbtu 0.40 0.37 0.37 0.37

FY04 FY05 FY06 FY07

Volume (PJ) 25.09 25.02 25.02 25.02
Average Strike US$/mmbtu 0.38 0.40 0.42 0.44
Represents the discount to NYMEX that AECO gas receives
For further information regarding this report, please contact:
Stephen Jones, Fletcher Challenge Energy
Telephone: (649) 525-9230 e-mail: stephen.jones@fce.co.nz

Appendix 1

Sales
By
District June
Quarter
FY 2000 June
Quarter
FY 1999
YTD
FY 2000
YTD
FY 1999

Natural Gas (bcf)
Saskatchewan 4.7 4.1 19.4 18.0
Central Alberta 3.9 4.2 16.0 17.0
Provost 4.8 5.1 18.3 15.9
Total 13.4 13.4 53.7 50.9

Oil (000 bbls)
Saskatchewan 687 471 2,357 1,947
Central Alberta 225 270 1,093 1,169
Provost 400 491 1,744 2,117
Total 1,312 1,232 5,194 5,233


Average
Daily
Production June
Quarter
FY 2000 June
Quarter
FY 1999
YTD
FY 2000
YTD
FY 1999

Natural Gas (mmscf)
Saskatchewan 53 45 53 49
Central Alberta 42 46 44 46
Provost 53 56 50 44
Total 148 147 147 139

Oil (bbls)
Saskatchewan 7,549 5,176 6,440 5,332
Central Alberta 2,473 2,972 2,986 3,204
Provost 4,396 5,396 4,765 5,798
Total 14,418 13,544 14,191 14,334

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