Sasol's Shale Gas Stake with Canada's Talisman Energy is Part of Gas Price Strategy

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Researched by Industrial Info Resources (Sugar Land, Texas)--Sasol Limited (NYSE:SSL) (Johannesburg) has made another gas field acquisition by acquiring a 50% interest in Talisman Energy Incorporated's (NYSE:TLM) (Calgary, Alberta) Cypress A shale gas assets in British Columbia for $1.08 billion. This follows Sasol's purchase of 50% of Talisman's Farrell Creek shale gas assets in December 2010 for $1 billion.

John A. Manzoni, president and CEO of Talisman, said that the deal would allow Talisman and Sasol to unlock additional value in the world-class Montney shale fields and potentially accelerate development of the resources in the area. He said that the Cypress A assets were very similar to nearby Farrell Creek and that the partners would now create an integrated long-term plan for the area. Commercial development of Cypress A is not expected to start for a number of years, as it is in much earlier stages than the Farrell Creek project.

Pat Davies, Sasol's chief executive, said: "The additional acquisition of another high-quality natural gas asset will accelerate our upstream growth while also potentially advancing Sasol's already strong GTL (gas to liquids) value proposition using our proprietary technology."

A feasibility study by the partners is currently under way to study the viability of a GTL facility in western Canada in which Talisman will have the option to be a 50% partner. Sasol is currently leading the study, and front-end engineering and design (FEED) could begin in the second half of 2012. Sasol said that the integrated development of the two fields would allow for optimization and synergies. The existing and planned pipeline infrastructure in North America also allows for gas to be sold either into the regional gas market or to a potential integrated GTL plant. The GTL potential from Sasol was key in choosing the company as a partner. In addition to the acquisition deals, Sasol provide $814 million in funding, or 75% of Talisman's future capital requirements.

Sasol's coal-to-liquids technology was probably a key factor in the progress of the 94,000-barrel-per-day project with Chinese coal miner the Shenua Group (Beijing) being given initial environmental approval by China's Ministry of Environmental Protection after there was some doubt that the Chinese authorities would allow foreign technology to develop the $9 billion project. The project now awaits China's National Development and Reform Commission for final approval. In December, Davies said that Sasol was expecting a positive response from the Chinese government and that the company hoped to make the investment decision during 2011. For related information, see February 7, 2011, article - Sasol Puts Chinese Coal-to-Liquids Project on Hold.

Sasol believes that the introduction of unconventional gas sources will keep gas prices at reasonably low levels for some time. "The lower the gas price and the higher the oil price, the better it is for Sasol. The circumstances are just perfect for us in the U.S.," said Davies.

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