Shell insider trading case closes

By KRIS HALL – The Dominion Post | Saturday, 21 June 2008

Lawyers arguing claims brought by former Southern Petroleum investors against oil giant Shell in New Zealand’s longest-running insider trading case say it could be Christmas before a decision is reached.

 

The complex, stop-start nature of the case saw it over-run its allotted six weeks in Auckland High Court, offering Justice Hugh Williams little respite with which to reflect on proceedings before he slips back behind the bench for an overdue criminal re-trial.

The wait, however, will be of little consequence to some 700 plaintiffs who have waited 12 years for the courts to rule on claims that their shares were undervalued during a 1996 takeover by Fletcher Challenge Energy.

Led by Gary Judd, QC, the plaintiffs allege that revelations from a team of experts at a deep gas study presentation in New Plymouth in late 1995, relating to the potential of prospects in the Mangahewa onshore Taranaki gasfield, sparked the 1996 takeover.

The group is seeking tens of millions of dollars in compensation from Shell, which inherited the assets and obligations of Fletcher Challenge Energy following a 2001 takeover, based on claims that “price sensitive” material stemming from the presentation was withheld.

The material, said Mr Judd, prompted former Fletcher Challenge Energy director James Patek to force through the purchase of subsidiary Southern Petroleum to gain access to untapped gas reserves “potentially bigger than Maui”.

The defence dismissed the claims as “misconceived” and “ill-founded”, while Mr Patek said he was not privy to such information till well after the takeover.

Ironically, the same week the case concluded Todd Energy announced plans to drill two more appraisal wells in the Mangahewa field following recent successes. The potential of the Mangahewa field, however, was unknown during the mid-1990s.

Mr Patek was a director of both Fletcher Challenge subsidiaries, Petrocorp and Southern Petroleum, in 1995. The two companies had split onshore and offshore exploration interests and entitlements in Taranaki through an alignment deal struck in 1993. Through this deal Petrocorp was able to activate its exploration strategy study.

By June 1995, Petrocorp owned nearly 85 per cent of Southern shares with the balance owned by the public. An August 1995 bid for remaining Southern shares at 63 cents a share was rebuffed by significant shareholders, said Mr Patek, on grounds related to Southern’s valuation.

Complicating the deal was an award by the government of five onshore Taranaki exploration permits to Southern.

A revised share price of 75c was offered, despite “vehement opposition” from then Fletcher Challenge chief executive Hugh Fletcher.

The plaintiffs say they would have held out for more had they been aware of the deep gas findings. Witnesses’ estimates of value ranged from $11.22 a share to $1.99.

The plaintiffs also heard how information revealed at the deep gas study presentation was used a week later by Petrocorp to halt the planned exit from New Zealand by Canadian-owned methanol producer Methanex. Mr Patek maintained he never saw the information.

In summing up Mr Judd said Mr Patek and other executives “were not fraudulent directors seeking to deprive the minorities a fair value for their shares”.

He said they were simply company men implementing group strategies for the benefit of Fletcher Challenge Petroleum.

“However, it is submitted that in carrying out those strategies Mr Patek and Petrocorp found themselves on the wrong side of the strict liability insider trading law as it was in New Zealand in 1995.”

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