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Backgrounder to Peak proposal for Fletcher Energy


PEAK PETROLEUM


Backgrounder to Peak proposal for Fletcher Energy


BENEFITS TO FLETCHER ENERGY SHAREHOLDERS OF THE PEAK PROPOSAL

The Peak Petroleum proposal for Fletcher Energy provides the following key advantages to Fletcher Energy shareholders.

„X It will provide a minimum of US $3.70 cash per share for the cash component of the proposal compared to the Shell bid of US $3.34 per share.

„X It will give shareholders the right, if they choose, to subscribe for an allotment of shares in Peak Petroleum allowing shareholders to participate in the full value of Fletcher¡¦s New Zealand and Brunei assets and in the future upside likely to be available from its early-stage resources.


BENEFITS TO NEW ZEALAND

¡§Many Fletcher Energy shareholders do not want the country to become a branch office economy and will welcome this initiative from fellow shareholders and investors to reject the Shell bid and retain the benefits of the Fletcher Energy resources in New Zealand,¡¨ says Greymouth chairman Mark Dunphy. ¡§I am confident our initiative will find broad support from the investment community, who can see the exciting upside associated with the Fletcher portfolio, particularly the future development of Pohokura gas condensate field where the reserves are now calculated to be much greater than originally thought. The logic and investment potential of retaining a listed, independent, New Zealand - focussed oil and gas exploration company, rather than have these assets disappear into overseas hands at a significant value discount, is widely accepted.¡¨

Mr Dunphy says there is growing concern among Fletcher Energy shareholders and market commentators about the inadequacy of the Shell bid, and the impacts of it being accepted.

As well as being better for Fletcher Energy shareholders, the Peak Petroleum proposal will create the following advantages for New Zealand.

„X It will preserve a major independent oil and gas company to provide competition with companies like Shell/Todd.

„X It will retain valuable New Zealand natural resources in the ownership of a company listed on New Zealand and overseas stock exchanges.

„X It will preserve skills in New Zealand rather than exporting them.

„X It will enhance existing jobs (Peak Petroleum plans to retain and incentivise key Fletcher Energy staff), and also create new job opportunities.

„X It will assist with regional development objectives.

„X Profits will be retained in New Zealand and will not all go overseas.

¡§Our proposal is not only a better deal for Fletcher Energy shareholders, it is a better deal for the country,¡¨ said Mark Dunphy. ¡§It preserves valuable resources, skills and jobs, ensures competition in the oil and gas industry, and a continuing opportunity for New Zealanders and overseas investors to invest in a major New Zealand oil and gas company.

PROPOSAL DETAIL

The structure of the Greymouth proposal for Fletcher Energy mirrors the structure of the Shell bid, and does not affect the proposed overall reconstruction of the Fletcher Challenge Group.

Like the Shell bid, the new consortium will offer Fletcher Energy shareholders a share in the newly formed Rubicon company for every Fletcher Energy share and one Capstone Turbine share for every 70 Fletcher Energy shares, as well as a cash sum.

As with the earlier Shell bid, Fletcher Energy¡¦s Canadian and Argentinean businesses will be sold. Peak has a contract to sell them to Penn West Petroleum Limited with that sale being concluded at the same time as Peak acquires Fletcher Energy. (Penn West is a major Calgary based petroleum and natural gas producer, listed on the Toronto Stock Exchange. The company has a market equity capitalisation of $C 2.2 billion and an enterprise value of $C 2.8 billion.)

The key differences with the new proposal are:

„X It will provide a minimum of US $3.70 cash per share for the cash component of the proposal compared to the Shell bid of US $3.34 per share.

„X Fletcher Energy shareholders will have a right (but not an obligation) to subscribe for shares in Peak Petroleum, with an allotment guaranteed.

Key Fletcher Energy staff will be incentivised to remain with the company and all existing employment rights will be honoured.

Legal advisers to the consortium are Phillips Fox in Wellington, Allen Allen & Hemsley in Sydney and Burnet Duckworth Palmer of Calgary.


FLETCHER CHALLENGE ADVISED

The consortium has been in communication with Fletcher Challenge since early December asking for access to information on which to base an offer.

The consortium has now requested the opportunity to immediately commence due diligence on Fletcher Energy with the objective of making an unconditional bid available for shareholders to consider by March 23.

Fletcher Challenge directors have been asked to adjourn a special shareholder meeting scheduled for March 6, until March 23 so that an unconditional offer by Peak can be considered by shareholders then, along with the Shell bid.

Peak¡¦s objective is to have the whole transaction completed as soon as possible, subject to court and shareholder approval.

The consortium¡¦s timetable is for the public float of Peak Petroleum to coincide with the settlement of the Peak proposal creating the opportunity for Fletcher Energy shareholders and other investors to participate in the ongoing ownership of the Fletcher Energy¡¦s New Zealand and Brunei assets. A prospectus is planned to be available shortly.

¡§This is a friendly proposal. We are asking Fletcher Challenge directors to work co-operatively with us, in the interests of other Fletcher Energy shareholders, so that a superior offer for their shares can be put in front of them at the same time the Shell bid is voted on,¡¨ said Mr Dunphy. ¡§We are confident that Fletcher Challenge directors will facilitate their shareholders having the opportunity of accepting whichever offer they see fit.¡¨


GREYMOUTH AND PEAK

Greymouth Petroleum Mining Company is a privately owned company registered in New Zealand.

Greymouth is owned by private investors with a long history of involvement in international oil and gas production.

Its Chairman is Mr Mark Dunphy, a New Zealander who headed Australia¡¦s publicly listed oil and gas explorer Cultus Petroleum NL for 10 years until 1999. The chief operating officer is Mr John Sturgess of Auckland, formerly a petroleum engineer with Shell International.

Greymouth¡¦s initial focus has been to establish a production base in Taranaki through the redevelopment of Motoroa, New Zealand¡¦s first producing oil field. This field and the relevant mining interest abuts immediately to the south of the 200 million barrel equivalent Fletcher Energy Pohokura gas/condensate field. Pohokura was discovered by Fletcher explorationists in March 2000 and the Motoroa property was acquired by Greymouth in August 2000. Greymouth¡¦s existing operations are built on extraction of marginal oil using beam pumps and stripper wells and future plans are directed to exploration of the deeper gas potential of the property.

Involvement in the Fletcher/Shell situation was sparked by interest in the New Zealand energy assets that Shell is obliged to sell to meet its Commerce Commission conditions, and the expansion possibilities that exist within these assets.

Greymouth¡¦s continuing investigations led it to the conclusion that the Shell bid significantly undervalued Fletcher Energy¡¦s assets. Other respected organisations and individuals, some of whom are existing Fletcher Energy shareholders, have joined Greymouth in its bid to keep these assets in independent ownership. Mr Dunphy says the activities of the Greymouth company do not form part of the current proposal from Peak Petroleum to acquire Fletcher Energy. Greymouth has committed to subscribe for a shareholding in Peak Petroleum.

Greymouth was the initial sponsor of the proposal to acquire Fletcher Energy and has negotiated the sale of the Canada and Argentina assets to Penn West Petroleum.

Greymouth is the founder of Peak Petroleum. Peak is backed by leading financial investors and major shareholders in Fletcher Energy.

The principal New Zealand consortium members are an FR Partners private capital group and the Guinness Peat Group, who together are committing over half of the equity capital required for the proposal. Other consortium members include leading New Zealand and overseas institutional investors in Fletcher Energy.

For further information, please phone:
Mr Dunphy of Greymouth on +649 366 3634
or Mr Bryan Clake, Vice President of Penn West in New Zealand on +649 366 3634
or Mr Bill Andrew, President of Penn West in Calgary on +1403 777 2502

Issued by Allan Boyle Associates Ltd - Contact: Cedric Allan, telephone + 649 303-1633

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