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