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Talisman-Sasol Deal Includes GTL Option

Calgary-based Talisman Energy Inc. is selling a 50% working interest in its Farrell Creek assets in the Montney Shale to Sasol Ltd. for C$1.05 billion. As part of the deal, the partners said Monday they will weigh the market viability of converting gas to liquid fuels using Sasol's gas-to-liquids (GTL) technology.

"This is a strategic move towards unlocking some of the value of our Montney assets for us and our new partner, consistent with the strategy of derisking and developing Talisman's very large shale opportunities in the region," said Talisman CEO John A. Manzoni.

Talisman said the deal allows it to develop the Farrell Creek area and unlock some of the value of the estimated 44 Tcfe of net contingent resource it holds across the Montney Shale play in northeastern British Columbia. Farrell Creek represents about 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, which is based in Johannesburg, South Africa, will pay 25% of the consideration (approximately C$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 C$790 million. The company 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. Closing is expected in the first half of 2011.

The play has been largely derisked and production at Farrell Creek is expected to exit this year at 40-60 MMcfe/d. Talisman's processing facilities at Farrell Creek have been expanded to 120 MMcf/d, and the company has secured more than 500 MMcf/d of takeaway capacity from the region, it said.

"The price appears to be very favorable for a 50% interest in 22% of Talisman's resource potential in the Montney," analysts at Barclays Capital said in a note. "The transaction implies a value of $6.5-10 billion for Talisman's assets in the Montney. We would caution, however, that evaluation of the Farrell Creek assets is much further along than the rest of Talisman's assets in the play...This transaction should allow the company to accelerate its Montney drilling activity."

A GTL facility in the region could provide a strategic alternative to traditional North American pipeline or liquefied natural gas (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," the companies said.

Sasol CEO Pat Davies said the acquisition accelerates the company's upstream growth and advances its GTL opportunities. "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 location of the Farrell Creek assets and their access to North American pipeline infrastructure makes them sustainable on a long-term, stand-alone basis, Sasol said. "The existing pipeline infrastructure in North America also allows for other gas monetization options in the future, such as providing for the potential to use the gas as feedstock in an integrated GTL project in the region."

Sasol has operating GTL projects in South Africa and Qatar, a project under construction in Nigeria and proposed developments in a number of countries around the world.

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