Fletcher Energy fires ahead

By Phil Boeyen, ShareChat Business News Editor

Wednesday 28th February 2001

A strong interim result from Fletcher Energy (NZSE: FEG) is likely to fuel the argument that Shell and Apache are getting a cheap deal for the company.

In the six months ended December FEG recorded a 77% jump in profit to $308 million. Included were gains of $50 million on the sale of Capstone shares, $25 million on the sale of the company's stake in New Zealand Refining, and $161 million on transfer of tax.

Net earnings before unusual items rose 62% on the previous year to $99 million, and net cash flow from operations leapt 51% to $445 million. Total sales were $1.032 billion compared with $737 million.

CEO Greg Gailey says strong prices combined with solid production levels for oil and condensate and North American gas were the dominant features of the half-year.

"This gave the company its best six-monthly financial performance ever."

The result may have been even better but Mr Gailey says the full benefits of commodity price strength experienced during the period were not realised due to the company's hedging programme.

Although the company says there may be some pressure on oil prices in the second half of the year as the Northern Hemisphere winter comes to an end, prices are unlikely to fall dramatically in the short to medium term.

"North American gas prices have also been very strong during the period and are expected to remain strong on the back of sound market fundamentals," says Mr Gailey.

In production terms the company says assessments of the Pohokura discovery continued and reserves estimates were significantly upgraded during the period.

It says two new oil wells on the Maui BD Incremental Oil Project have also produced up to expectation and, despite additional costs caused by drilling problems, are expected to produce a positive economic return due to current high oil prices.

Adding to its Capstone and NZ Refining investment success the company has also made another gain post balance date on its stake in Australian energy explorer Petroz. FEG bought the A$12.8 million holding last July and sold it in January at a profit of A$7.8 million.

Fletcher Energy shareholders are due to vote next week on whether to sell the company to Shell and Apache, although that bid has since been surpassed by one from a group called Peak Petroleum.

Peak yesterday announced it would pay extra cash for the company, which could put the Energy sale on ice until due diligence is completed.

Peak, which is backed in part by Ron Brierley-run GPG, intends to have an unconditional offer set by March 23rd.

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