Apache, Shell Bid for Properties Rejected

The Commerce Commission of New Zealand, voicing concern that one company would control the country's natural gas markets, on Thursday rejected the takeover by Royal Dutch/Shell Group and Apache Corp. of Fletcher Challenge Energy, the country's largest energy exploration company. For the moment anyway, a rejected bid would end Houston-based Apache's attempt to increase its Canadian holdings.

Shell, which has been in charge of the transaction from the beginning, was expected to appeal the decision as early as today.

Although the financial transaction was officially closed earlier this week by Fletcher, Shell and Apache (see Daily GPI, Oct. 12), New Zealand Commission Chair John Belgrave said his department was not satisfied that Shell would not "acquire or strengthen its dominance in the gas production and liquefied petroleum gas production markets" --- basically monopolizing the country's energy markets.

The sell off of Fletcher Challenge Group's energy unit is subject to approval by the country's commerce commission. Even though the commission said nothing --- nor would it have any reason - about Fletcher's divestiture of its Canadian assets, without Shell's participation, the Apache deal will fall apart, too, said analysts.

In the takeover, Shell was basically going to keep or sell off all of Fletcher Energy's international assets, and Houston-based Apache would take on Fletcher's Argentina and Canada properties. For Apache, those properties would add 713 Bcfe of natural gas in proved reserves, or about 12% to its current proven reserve base.

Both Shell and Apache planned to comment until after appealing the commission's decision. However, a Shell spokeswoman said the company was "very disappointed" by the decision to reject the takeover bid, and said company officials would be meeting with New Zealand officials "at the earliest opportunity to consider more closely our concerns regarding the proposal."

Shell has indicated it is "hopeful" it still will be able to complete the transaction, and speculation mounted that the energy giant would alter its bid. Whether a changed bid would affect Apache's wanna-be properties was not known, but the controversy seemed to center on the New Zealand holdings only. In its current bid, Shell was going to become the dominant oil and natural gas producer onshore in New Zealand, also holding the largest prospects in acreage.

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