|
Doubling up in Montney South Africa’s Sasol matches pre-Christmas BC shale gas assets acquisition, evaluating GTL; partner Talisman says LNG exports option Gary Park For Petroleum News
South Africa’s petrochemical giant Sasol is expanding its natural gas interests in British Columbia to build feedstock for a possible gas-to-liquids plant, although its joint-venture partner Talisman Energy is not yet fully sold on that option.
But Sasol left no question about its commitment to the Montney shale gas play of northeastern British Columbia by committing C$1.05 billion to develop stranded gas.
The investment matches its original foray when it acquired a 50 percent working interest in Talisman’s Farrell Creek Montney assets, including land, wells and processing facilities, negotiating a similar stake in the Cypress A resource 25 miles to the north.
Similar to the initial transaction, Sasol will pay C$250 million in cash at closing and C$800 million to fund 75 percent of Talisman’s future capital commitments to Cypress A.
The joint-venture partners say they do not expect to start commercial development at Cypress A, which is less advanced than Farrell Creek, for several years, reinforcing Sasol’s strategy of accumulating long-term prospects.
Higher price for Farrell Creek In a research report, Ticonderoga Securities estimated Sasol will pay C$37,000 per net acre for the Cypress lands compared with C$41,000 for Farrell Creek, which gave it an estimated 4.8 trillion cubic feet of net contingent resources. Cypress A covers 57,000 acres and holds an estimated contingent resource of 11.2 tcf.
CIBC World Markets analyst Andrew Potter said terms of the Cypress A deal “infers a valuation for Talisman’s Montney acreage” of about C$7 billion, up C$5.5 billion from his firm’s valuation following the Farrell Creek deal.
Sasol and Royal Dutch Shell are the only companies that operate commercial-scale GTL plants, with Sasol running facilities in South Africa and Qatar and currently building another in Nigeria, with more developments planned for other countries.
Shell operates a plant in Malaysia and is building the world’s largest GTL plant in Qatar.
Following the initial Sasol-Talisman deal, the two companies started a feasibility study that is expected to take 18 to 24 months of a commercial GTL facility in Western Canada, with the thought of producing premium-priced diesel, naphtha and jet fuel to meet a high demand in North America.
Sasol Chief Executive Officer Pat Davies said the transaction “will accelerate our upstream growth” and open the way for his company to utilize its proprietary GTL technology.
Talisman Chief Executive Officer John Manzoni said the Cypress A deal allows the partnership to “unlock the additional value (of the Montney play) and potentially accelerate development” of the Farrell Creek resources.
“Exploring the option of doing something other than simply sticking the gas into the North American pipeline network is potentially a hugely accretive option,” said Paul Smith, Talisman’s North American vice president.
He said the injection of Sasol capital, along with strong early drilling results, will help speed the pace of development from four production wells that were completed last year in Farrell Creek, where Talisman has four operated rigs and drilled another 17 gross operated wells. A piloting program, including 16 gross wells last year, is continuing at Greater Cypress and Greater Groundbirch, Talisman’s other major areas of interest in the Montney.
Equal weight to LNG However, Mike Adams, Talisman’s senior manager of corporate projects and business development, told a gas symposium earlier this year that Talisman is giving equal weight to GTL and LNG as it ponders options for the Montney gas.
He said Talisman is interested in LNG “because it’s a way to monetize some North American gas” by taking advantage of anticipated growth over the next 10 years in Asian markets, where gas prices are indexed to oil and currently fetch about $12 per thousand cubic feet, compared with $4 in North America.
But Adams conceded the prospect of LNG exports from Canada faces obstacles, noting the Kitimat LNG project has to overcome First Nations concerns about the environmental impact as well as obtain Canadian government approval for exports.
On the plus side for GTL “you don’t have to know anything about the GTL technology to know when you have high oil prices and low gas prices the economics of this are enhanced. The bigger the gap, the better the economics,” he said.
Even though GTL technology exists and works, it is expensive and less efficient than LNG, he cautioned.
| 