Shell gives up Maui control

By GEOFF SENESCALL

Royal Dutch Shell effectively relinquished control over New Zealand's largest producing gas field, as part of its bid to secure its $4.3 billion takeover of Fletcher Energy.

This was revealed in a 38-page ruling released yesterday by the Commerce Commission, which sanctioned the bid.

After the purchase of Fletcher Energy, Shell will end up with 93.75 per cent of Maui, which produces about 80 per cent of New Zealand's gas.

To appease concern by the commission about dominance in the gas market, Shell, in its second submission, agreed to reduce its holding to 83.75 per cent.

But in a further development late last week, it also introduced what the commission called a "Deed Poll" over the ownership structure of the Maui gas field.

Under this "Deed Poll," Shell has undertaken not to vote in favour of a decision on any matter relating to the Maui joint venture unless the decision is also supported by Todd or the purchaser of the 10 per cent equity interest being sold by Shell.

"This means that either Todd [with 6.25 per cent] or the 10 per cent divestee must vote in favour of a decision for that decision to be binding on the joint venture," the commission said.

While present production from Maui is locked up in contractual commitments with the Crown, the commission notes that the field could produce extra gas.

With the sale of 10 per cent and the execution of the "Deed Poll," the commission said, "Shell will face some degree of constraint on the production and marketing of this gas."

Other considerations in dismissing fears that Shell might dominate the gas market included the sale by Shell of the McKee, TAWN, Ngatoro, Kaimiro and Mangahewa fields.

The commission said these would provide an important competitive constraint on Shell.

It also said that competition for Shell might arise from the Rimu field, which is expected to start production in the next two years.

The commission backed away from its original view that Todd was not likely to place an effective competitive constraint on Shell.

"Having considered ... submissions and other information, the commission concludes that Shell and Todd are not one head in the market."

Another area of concern for the commission was post-2009 gas production. Here the commission said that the further sales agreed to by Shell had alleviated its concerns. These include sales of the McKee, TAWN and Mangahewa gas fields and the divestment of 3.6667 per cent of Pohokura and 10 per cent of Maui.

In terms of Pohokura, which is expected to become New Zealand's next Maui, the commission said that by selling down to 48 per cent, Shell would not be able to exert a substantial degree of influence over the field.

As for concerns over the LPG market, the commission said that Shell's undertaking to sell the TAWN field created a significant competitor with its own processing facilities.

Furthermore, the commission said that Shell's reduced influence over Maui was also taken into account.