Calgary-based Talisman Energy has signed an agreement with South Africa’s Sasol Limited on Dec. 20 to create a strategic partnership to develop the Farrell Creek assets in Talisman’s Montney Shale play in northeastern British Columbia. Talisman will sell a 50% working interest in its Farrell Creek assets to Sasol for a total consideration of Can$1.05 billion (about US$1.03 billion).
The deal 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 about 22% (9.6 tcfe) of Talisman’s resource potential in the play and about 275 (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 (about Can$260 million – US$256 million) in cash at closing and carry 75% of Talisman’s future capital commitments in the Farrell Creek area to a total of about Can$790 million (US$778 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 CEO 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 and 60 MMcfe per day, said a Talisman spokesman. Talisman’s processing facilities at Farrell Creek have been expanded to 120 MMcf per day, and the company has secured more than 500 MMcf per day of egress capacity from the region.
As part of the deal, 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 prove 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 liquid 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.
Sasol Ltd is an integrated energy and chemicals company with headquarters in Johannesburg, South Africa. Sasol is one of two companies with commercial GTL technology, with 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.
Sasol is looking at expanding its proprietary GTL technology in new markets. Sasol is listed on the Johannesburg and New York Stock Exchanges, and has a market capitalization of about US$30 billion. The company is also active in exploration and development across Africa and Asia.
Goldman, Sachs & Co. and Jefferies & Company acted as advisors to Talisman on this transaction.
Talisman Energy Inc. is a global, diversified, upstream oil and gas company, headquartered in Canada. Talisman’s three main operating areas are North America, the North Sea, and Southeast Asia.