Petrocorp to Fletcher at same price

Press, 4 March 1988, Page 1

Petrocorp to Fletcher at same price

By

BRENDON BURNS,

political reporter

Petrocorp would produce profits for Fletcher Challenge, said its chief executive, Mr Hugh Fletcher, last evening. J,

He was clearly delighted to have secured the purchase of the State’s 70 per cent share of the oil and gas company, for the same $1.75 a share British Gas had earlier offered.

The Leader of the Opposition, Mr Bolger, welcomed the sale to a New Zealand company but said the price was still too low'. Mr Fletcher said he and his executives had made a big mistake in earlier not offering more for Petrocorp. ' “We blew it,” he said.

Fletcher had imposed conditions on the . sale, and considerably less than $1.75 a share had been offered. | ( J !

These conditions, ■ which included seeking assurances about Petrocorp’s hydrocarbon reserves, were withdrawn before February’s sale to British Gas. But the share price offer had still not been up to that offered by the British company, j "Maybe we made a mistake. Maybe we should have matched it,” said Mr Fletcher. j He said Fletcher had indicated to the Government when the initial agreement was ; signed with British Gas that it would match the price. The value of Petrocorp to Fletcher Challenge includes huge tax write-offs against losses.

“I understand ,it; is ; over a billion (dollars),” said Mr Fletcher.

Petrocorp has made only small profits for the Government, while requiring an $BOO million cash injection last financial year.

But Mr Fletcher believed it would make a profit for Fletcher Challenge.; A different stage of the company’s cycle had been

reached with the McKee oil field and methanol plant now producing cash flows. I He did not expect non-profit-able parts of the company, such as , the ammonia urea plant, would ] be sold off. This was because the chemical plant was still producing a cashflow.

The; deal was signed at the Beehive last | evening by Mr Fletcher and: the Minister of State-Owned ( Enterprises, Mr Prebble.

Included are clauses, giving Fletclier Challenge the right to have I the Government buy 100 million of its shares at $4 in four years.! Mr j Fletcher said this was designed by Fletcher Challenge to maintain its long-term debtequity ratio. | i The Government has an option to buy 100 million Fletcher Challenge shares jin 1992.'The price .would be $8.29; with both prices calcu ated under a complex formula, said |to produce equal value. | ■ ' (Mr! Prebble said this would allow! the Government the opportunity of re-entering I the petrochemical industry if there was a crisis! such as an oil shock. (Such a clause had not been included in the deal with British Gas, • but follows up expressions of concern about the loss of any State; role in the crucial oil and gas industries. Mt Prebble said neither options’ were likely to be exercised, but (protected the Government and | Fletcher Challenge if oil prices dramatically; rose ; or dropiped. j | • i Fletcher Challenge will use existing credit lines overseas! to

raise the $787.5 million needed to buy the Petrocorp shares. Payment ■ would be in United States dollars and be used to reduce New Zealand’s overseas debt, said Mr Prebble. Payment will be before March 31. iNo Fletcher Challenge share issue would be needed to finance the deal,” Mr Fletcher said. | A second bidder also sought to buy Petrocorp. It was believed to be the Shell-Todd group, although Mr Prebble would not specify.

' It had wanted only a 40 per cent shareholding and Mr Prebble said the main reason for accepting Fletcher Challenge’s bid was because it was for all the shares.

Mr Bolger said | last evening that he was delighted the Government had sold Petrocorp in line with the National Party policy against sales of strategic assets to foreign buyers. I But he said I the largest company in New Zealand was taking over the fifth-largest company, and a wider spread of shareholding would have been better for New Zealand. j Many people had missed Petrocorp’s earlier public share float, he said. Mr Bolger said Fletcher Challenge now had a monopoly on the supply of natural gas. It has also bought Petrocorp at a price • which was too low to reflect the taxpayers’ investment, particularly when a new oil field, in ( ■ which it had an interest, had just ] I been discovered. Further reports, page 8 !