Five billion dollars? No problem, claims Peak Petroleum's head

Friday 2nd March 2001

MARK DUNPHY: 'Value gap has attracted our investors'

By Nick Stride

Shell/Apache's offer for Fletcher Energy undervalues the company by at least $US700 million ($1.6 billion), Peak Petroleum boss Mark Dunphy said yesterday.

"That's essentially the value gap that has attracted our investors," Mr Dunphy told The National Business Review as Peak's lawyers headed to court and its brokers rounded up institutional support for its $5 billion counterbid.

He said Shell would be paying $US2 a barrel for the 355 million barrels estimated to lie in Energy's New Zealand and Brunei fields. That compared with transactions around the world at $US4 a barrel.

The Fletcher Challenge board has reacted frostily to Peak's 11th-hour bid, declining a request to delay the crucial March 6 shareholders' meeting until March 23 and so far refusing Peak due diligence access to Energy's books.

Mr Dunphy is philosophical about FCL's position.

"FCL has had a difficult year. For the Peak consortium to come to the table as we have done is probably privately the last thing they wanted to see."

"They were nearing the 26- mile mark and we want to take them back to 16 miles. I've known (chief executive) Michael Andrews for many years and have the highest regard for him. He said he wished we'd come to the table earlier."

Mr Dunphy first became interested when Shell announced its Energy bid in October. He thought there was no chance the bid would clear the Commerce Commission.

His private company, Greymouth Petroleum, is appealing the commission's clearance.

When the bid cleared he asked Shell if it were interested in a proposal to buy the assets it had undertaken to the commission to dispose of. Shell asked him to draw up a formal proposal and to make repres-entations to the commission, "but once they received approvals we didn't hear from them again."

In the last week of November and early December he talked to various members of the Peak consortium and then approached FCL.

He was told FCL had signed a non-solicitation agreement with Shell which forbad it to court other bidders or to discuss possible bids with them.

"We only received some fundamental information on Tuesday last week."

Peak met with the FCL board this Tuesday and gave them an information memorandum identifying all the key equity participants, together with letters from "leading New Zealand and Australian banks" supporting Peak's proposition, Mr Dunphy said.

FCL's public response has been to point out the conditional nature of Peak's offer, with firm financing depending on a successful outcome to due diligence, and to contrast it with Shell's unconditional offer.

FCL has also cast doubt on Peak's ability to come up with the necessary money.

Mr Dunphy said he didn't think FCL could have any doubt on that score. "We've ensured we have more than enough cash ... to underwrite each component to Fletcher Energy shareholders."

The final debt-to-equity mix hadn't been decided but it planned quickly to adopt the 40% debt to total assets ratio common in the industry.

He wouldn't name Peak's equity backers other than FR Partners and GPG, saying it wasn't up to him to "put their hands up for them."

He also declined to say what figure Penn West Petroleum was offering to trump Apache's $US600 million bid for the Canadian and Argentinian assets, saying he didn't want Shell and Apache to have that information.

Sharebroker Forsyth Barr estimates Penn West is offering $US750-$US800 million. Penn West would also be "an important but not significant" participant in Peak's offer for New Zealand and Brunei, Mr Dunphy said.

Market rumours Peak had an agreement to sell Brunei oil to France's Elf Aquitaine were overstating the case. Peak didn't intend to keep Brunei long-term and he had spoken to Elf as part of due diligence. He understood they wouldn't be happy having Shell as a neighbour in the blocks it already owned because there was thought to be deep gas running beneath both permits, giving rise to "unitisation issues."

Mr Dunphy said he was confident Peak could complete due diligence by the March 23 "drop-dead" date for the Shell deal provided it was given immediate access.

Shell staff are effectively running Energy and NBR understands they have already made changes. In that situation doing due diligence will be an interesting experience for Peak if it gets in to look at the books.

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