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Maui BD Project Update

AUCKLAND, 27 July 2000, – Today the operator of the Maui BD Oil project, Shell Todd Oil Services, recommended that the Maui Joint Venture cancel plans to drill and complete a horizontal well from the MB-7 location. Fletcher Challenge Energy has accepted this recommendation.

Although the MB-7 horizontal well was drilled into the target zone, the lower section of the well has become unserviceable following the loss of a 520 metre drilling assembly within the horizontal well section.

Shell Todd Oil Services has proposed a new course of action; a conventional deviated well into what would have been the far end of the MB-7 horizontal section. This well would be drilled as a sidetrack from the upper (vertical) section of the MB-7 well bore. This option, which carries considerably lower technical risk but offers correspondingly lower reserve recovery, is currently being considered by the joint venture.

At the instigation of the joint venture partners, the operator, Shell Todd Oil Services, had recently made changes in project management, drilling process, and to improve project team communications and approach.

Lloyd Taylor, Chief Operating Officer, Fletcher Challenge Energy, noted that "In the last few months significant improvements were achieved in all areas, but they appear to be insufficient to deliver the original project concept which was based upon reasonable stretch targets for platform modification, rig utilisation and well design."

The Maui BD Incremental Oil project in its original scope targeted the development of 2.7 million barrels (Fletcher Challenge Energy share) of proved undeveloped oil reserves. In the event that the conventional deviated well is approved by the joint venture, it is possible that less than one-third of this undeveloped reserve will be recovered by the project. Proved developed reserves in the Maui B area are not impacted by the project failure.

Fletcher Challenge Energy's exposure on the project to date totals $54.3 million. A further $6.1 million (Fletcher Challenge Energy share) is estimated to be required to complete the drilling of a deviated MB-7 well.

Costs incurred to date in the project have been capitalised against the Maui B oil depletion pool. The project expenditure will increase depletion charges in financial year 2001, reducing offshore oil production profitability. A preliminary assessment suggests a reduction in profitability in the order of NZ$10/bbl of production from the Maui B oil pool. At this stage, no write-off of expenditure is foreshadowed in financial year 2001.


To: BUSINESS EDITOR From: STEPHEN JONES,
COMMUNICATIONS DIRECTOR
FLETCHER CHALLENGE ENERGY
Fax: AUTO Telephone: 64-9-525 9230 or 021 629 535
Fax: 64-9-525 9031
Please Note: If you do not receive 1 page(s) including this page, or if any page is not readable, please call the sender immediately on telephone 64-9-525 9000. Further information on Fletcher Challenge Energy can be viewed at the Fletcher Challenge World Wide Web site, at http://www.fce.co.nz

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