Source: Sasol, Talisman
South African energy firm Sasol (NYSE:SSL) has completed the C $1.05 billion (US $1.04 billion) acquisiton of a 50 percent participation interest in the Montney Shale Basin of Canada from Talisman Energy Inc. (TSX:TLM) (NYSE:TLM). The acquisition includes the high-quality Farrell Creek assets in the Montney Shale play of northeastern British Columbia.
This transaction allows Talisman to develop the Farrell Creek area and unlock some of the value of the estimated 44 tcfe of net contingent resource held across its Montney shale play. Farrell Creek represents approximately 22% (9.6 tcfe) of Talisman's resource potential in the play and about 27% (51,000 net acres) of the company's 190,000 net Tier 1 acres of land in the Montney. Sasol will pay 25% of the consideration (approximately $260 million) in cash at closing and carry 75% of Talisman's future capital commitments in the Farrell Creek area to a total of approximately $790 million.
"The acquisition of this high quality natural gas asset will accelerate our upstream growth while also advancing Sasol's already strong GTL value proposition," said Sasol chief executive, Pat Davies.
"In partnering with a credible international shale gas operator such as Talisman, we reap the dual benefit of leveraging their experience, as we grow our own shale gas expertise," Davies said.
The play has been largely de-risked and production at Farrell Creek is expected to exit this year at between 40-60 mmcfe/d. Talisman's processing facilities at Farrell Creek have been expanded to 120 mmcf/d and the company has secured over 500 mmcf/d of egress capacity from the region.
As part of the agreement, the partners have agreed to conduct a feasibility study around the economic viability of a facility in western Canada to convert natural gas to liquid fuels, using Sasol's commercial Gas to Liquids (GTL) technology. This could provide a strategic alternative to traditional North American pipeline or LNG marketing. The outlook for GTL could be very positive if North American natural gas prices continue to decouple from oil prices. The GTL process produces premium, clean liquids fuels.
Sasol will acquire a 50% working interest in all Talisman lands, existing wells and processing facilities in the Farrell Creek region. Talisman and Sasol will each own 50% of the Farrell Creek assets, with Talisman as operator of the partnership. Talisman and Sasol have also agreed to collaborate on certain other western Canadian natural gas opportunities. Closing is expected in the first half of 2011.