Sa­sol to pay $1.04 bil­lion for stake in Cana­dian Shale Gas As­sets

The Pak Banker - - Company& -

OT­TAWA: Sa­sol Ltd., the world's largest maker of mo­tor fu­els from coal, will pay C$1.05 bil­lion ($1.04 bil­lion) for a stake in Tal­is­man En­ergy Inc.'s Cana­dian shale-gas as­sets and may build a mo­tor­fu­els plant in the coun­try.

The two agreed to study "the eco­nomic vi­a­bil­ity of a fa­cil­ity in western Canada to con­vert nat­u­ral gas-to-liq­uid fu­els," Jo­han­nes­burg-based Sa­sol said in a state­ment to­day. "This could pro­vide a strate­gic al­ter­na­tive to tra­di­tional North Amer­i­can pipe­line or liq­ue­fied nat­u­ral gas mar­ket­ing."

Sa­sol uses its Fis­cherTrop­sch technology to trans­form gas from be­low the ocean floor and coal into liq­uid fu­els such as gaso­line and diesel in South Africa and Qatar. Ris­ing prices and ad­vances in ex­tract­ing shale gas have spurred the com­pany's in­ter­est in de­vel­op­ing plants to con­vert the gas.

Sa­sol rose 1.3 per­cent to 335.93 rand as of 11:43 a.m. in Joa­han­nes­burg. Tal­is­man closed at C$20.89 in Toronto on Dec. 17, giv­ing the com­pany a mar­ket value of C$21.3 bil­lion.

The trans­ac­tion ap­pears to be "well thought through," Abri du Plessis, chief in­vest­ment of­fi­cer at Cape Town­based Gryphon As­set Man­age­ment Ltd., said by phone to­day. "The mar­ket has been wait­ing for a cat­a­lyst to move the price" of Sa­sol.

The deal will give the South African com­pany 50 per­cent of Tal­is­man's Far­rell Creek op­er­a­tions in the Mont­ney Shale basin in northeastern Bri­tish Columbia. The 51.6 acre site holds an es­ti­mated 9.6 tril­lion cu­bic feet of shale gas, Sa­sol said.

Sa­sol, which built the world's first com­mer­cial gas­toliq­uids plant in Qatar, is study­ing shale gas in South Africa's Ka­roo re­gion with Ch­e­sa­peake En­ergy Corp. and Sta­toil ASA. Exxon Mo­bil Corp., Mit­subishi Corp., Re­liance In­dus­tries Ltd. and Su­mit­omo Corp. are also ex­pand­ing into shale gas as con­ven­tional en­ergy re­serves shrink. Fuel from nat­u­ral gas is cleaner than that made from oil, al­low­ing pro­duc­ers to charge higher prices.

New technology has made shale gas eco­nom­i­cally vi­able and al­lowed coun­tries to cut their de­pen­dence on im­ported liq­ue­fied nat­u­ral gas. U.S. shale-gas out­put has risen to about a 10th of its to­tal gas sup­plies, from 2 per­cent in 1990.

Sa­sol will pay C$262.5 mil­lion in cash for the trans­ac­tion and fund 75 per­cent of Tal­is­man's por­tion of costs to de­velop Far­rell Creek un­til the to­tal pur­chase price is paid, it said. Sa­sol and Tal­is­man will co­op­er­ate on other, un­spec­i­fied, gas op­por­tu­ni­ties in the re­gion, ac­cord­ing to the state­ment.

More­over, Nat­u­ral gas com­pa­nies are slash­ing their hedg­ing of fu­ture out­put as prices tum­ble, rais­ing the prospect of de­clines in drilling and pro­duc­tion.

About 30 per­cent of next year's gas has been hedged, down from ap­prox­i­mately 50 per­cent this year, ac­cord­ing to an­a­lysts at Canac­cord Ge­nu­ity, RBC Cap­i­tal Mar­kets and Ray­mond James. Gas fell 27 per­cent so far in 2010 and set­tled at $4.066 per mil­lion Bri­tish ther­mal units this week on the New York Mer­can­tile Ex­change, the low­est level in nine years for this time of year.

South­west­ern En­ergy Co., the largest gas pro­ducer in the Fayet­teville shale of Arkansas, has so far sold a lower per­cent­age of fu­tures and swaps for 2011 pro­duc­tion than for 2010. The drop in the avail­abil­ity of in­surance sug­gests spec­u­la­tors don't ex­pect an in­crease in gas next year and leaves com­pa­nies vul­ner­a­ble to price fluc­tu­a­tions.

"If pro­duc­ers are not able to hedge at at­trac­tive lev­els, they will be sell­ing more gas at spot prices, and if spot prices re­main de­pressed, that will leave less cap­i­tal for drilling in the fol­low­ing year," said Bil­iana Pehli­vanova, an an­a­lyst at Bar­clays Cap­i­tal in New York. -Bloomberg

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