Sasol Completes Talisman Shale Deal - Analyst Blog
15 June 2011 - 1:15AM
Zacks
South African petrochemicals group
Sasol Ltd. (SSL) has closed its
previously announced deal with Canadian energy explorer
Talisman Energy Inc (TLM) to buy
a 50% stake in the latter’s prolific Montney Basin shale natural
gas assets in western Alberta and north-eastern British Columbia
for approximately C$1,050 million (R7,413 million).
The transaction – which was
declared in March and the second between the two companies in
recent times – was completed following regulatory and shareholder
approvals. Per the agreement, Johannesburg-based Sasol and
Alberta-based Talisman will split ownership in 57,000 acres of
Talisman's Cypress A properties that are estimated to contain 11.2
trillion cubic feet of natural gas.
In the first strategic partnership
– signed in December 2010 and concluded in March – Sasol entered
the North American shale gas market by agreeing to pay C$1,050
million to acquire a 50% interest in another of Talisman’s Montney
shale properties, Farrell Creek, which holds an estimated 9.6
trillion cubic feet of gas.
The co-operation with Talisman is
part of Sasol’s previously laid out plans for a significant outlay
in upstream shale gas resources associated with its gas-to-liquids
(“GTL’) projects in North America apart from unlocking additional
value in the world-class Montney shale play.
In recent times, Sasol – a pioneer
in the area of synthetic petroleum alternatives – has continuously
focused on the commercialization of its GTL technology by
constructing plants in gas-rich regions of the world that will
strengthen its position in the industry in the coming years.
The company, which constructed the
world’s first commercial-sized GTL plant in Qatar, plans to
leverage the opportunity to arbitrage between gas and oil prices.
Under normal circumstances, the ratio of the price of oil (measured
in $ per barrel) to the price of natural gas (in $ per million
British thermal units) fluctuates between 6 and 12. However, in
recent times, this has decoupled to an unprecedented degree, up at
around 20.
With gas prices remaining at
depressed levels and thereby diverging significantly from high oil
prices, Sasol is looking to utilize the spread by using its GTL
technology that is expected to be more profitable than the
company’s traditional business of producing motor fuels from
coal.
Even though Sasol has a Zacks #4
Rank (Sell rating) in the short run, we are Neutral on the ADRs in
the longer term.
SASOL LTD -ADR (SSL): Free Stock Analysis Report
TALISMAN ENERGY (TLM): Free Stock Analysis Report
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