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Setback for Sasol GTL plans Talisman opts out of next phase of feasibility study, will focus on ‘accelerating investment in near-term liquids opportunities’ Gary Park For Petroleum News
South Africa’s Sasol is not yet ready to abandon its hopes of investing in Canada’s first gas-to-liquids plant, despite the exit of partner Talisman Energy from a feasibility study.
Nereus Joubert, the president of Sasol’s Canadian unit, said his company is committed to making a “proper decision” sometime this year on whether to proceed with a front-end engineering and design phase.
He said that work would cost “hundreds of millions of dollars” and would be authorized only if eventual sanctioning of the project was considered to be very likely.
Joubert said Sasol is not immediately looking for another partner, but would not rule that option out.
Meanwhile, the two companies said they will continue with their 50-50 upstream partnership in Talisman’s Farrell Creek and Cypress A gas assets in British Columbia’s Montney field.
Talisman Chief Executive Officer John Manzoni said his company opted out of the next phase of the GTL feasibility study because “there are better ways to allocate capital in support of our strategy,” and will instead focus on accelerating investment in near-term liquids opportunities to achieve 300,000 barrels per day of liquids and oil-linked production by 2015.
The Sasol partnership was formed in late 2010 when the South African company bought 50 percent of the two gas assets to explore the possibility of building two GTL plants of 48,000 bpd each in Western Canada at a cost some estimate at C$8 billion-C$10 billion, while Talisman left the door open to using the Montney gas to support an LNG export project. Each plant would have consumed about 500 million cubic feet of gas per day.
Assets under pressure In a financial update issued June 28, Sasol said the Montney assets are under pressure because of low gas prices, higher-than-expected drilling and completion costs, and high depreciation.
It said the problems have resulted in a “substantial loss position in the year to date.”
Gross output averaged 104.7 million cubic feet per day in the first quarter and the partners agreed to reduce the number of active rigs to four in the first half of 2012 and three in August.
Sasol said that scaling back will “not impede the de-risking of the assets that is currently under way. We remain committed to economically viable appraisal and production activities and prudent capital spending (at Farrell Creek and Cypress A).”
Talisman said monetizing its several trillion cubic feet of British Columbia’s gas resources is a concern with Western Canadian gas prices at C$2 per thousand cubic feet, but LNG and gas for power generation are possible options. Sasol agreed that LNG is an alternative.
The South African company said that although Talisman will not fund the next phase of the front-end engineering work on a GTL proposal, Sasol may still proceed, given that it has the financial resources.
CIBC World Markets analyst Andrew Potter said his firm had given the GTL project only a 50 percent chance of proceeding because of its “significant cost as demand for labor continues to increase and concerns surrounding inflation begin to swirl, we believe the (Talisman) decision demonstrates prudence.”
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