A Talisman pump jack in Alberta
A South African firm is doubling its investment in Canada, buying into another of Talisman Energy Inc.'s major natural gas properties in British Columbia.
Sasol Ltd. will pay $1.05-billion for a 50-per-cent stake in a deposit called "Cypress A," which contains an estimated 11.2 trillion cubic feet of recoverable gas.
Less than three months ago, Sasol paid the same amount for an identical stake in Farrell Creek, B.C., which is also a shale gas property and contains an estimated 9.6 trillion cubic feet of gas.
"Maybe a billion dollars is too round of a number," David Mann, Talisman's vice-president of corporate and investor relations, joked about the two $1.05-billion deals.
The deals mark the latest investments by international interests on Canada's shale gas bounty, as the industry explores new markets and non-traditional uses for the huge deposits.
The latest agreement, Mr. Mann said, "deepens the strategic relationship with Sasol," which agreed to buy a greater stake after winning a bidding round for Farrell Creek, where the two companies will drill 70 wells this year.
"As they came in and started to understand shale gas and understand Talisman, it just seemed that more was better," Mr. Mann said.
Talisman has only drilled five wells on Cypress A, making it a less-developed property.
Both Talisman lands are part of the Montney, one of northeastern British Columbia's two headline plays - the other is the Horn River - that contain massive gas reserves and have attracted billions in foreign investment in the past year. The two properties in the Sasol deals alone contain enough gas to supply all of Canada for six years.
Because of their huge size, and distance from traditional eastern markets, the Montney and Horn River have triggered a rush to find alternative uses and markets for the gas. Apache Canada Ltd. and EOG Resources Canada Inc. plan to decide later this year whether they will build a proposed $3.5-billion liquefied natural gas terminal, which would allow exports to Asia. Numerous other companies, including Royal Dutch Shell PLC, Mitsubishi Corp. and Korea Gas Corp., have examined similar plans.
Sasol has introduced another potential use for the gas bounty: transforming it into liquid fuels such as diesel, which is usually derived from crude oil. The Johannesburg-based company is a world leader in that technology, and the two B.C. deals demonstrate a growing confidence in establishing a beachhead in Canada.
Sasol said in a statement that the new purchase will "further cement" its relationship with Talisman, and allow it to "to scale up" a gas-to-liquids facility, if one is ever built.
The companies were quick to point out, however, that the extraction of gas from these massive fields does not depend upon the construction of such a facility, which would be the first of its kind in North America.
"The existing and planned pipeline infrastructure in North America also allows for gas to … be sold into the regional gas market," the companies said in a statement.
The newest deal will see Sasol pay Talisman $260-million in cash and agree to fund 75 per cent of future capital commitments, to a total of $790-million, George Toriola, an analyst with UBS Securities, wrote in a note Tuesday.
At $36,713 per acre, "deal metrics are attractive" for Talisman, he said.
"We expect Talisman to use its strong cash position to make opportunistic acquisitions," Mr. Toriola wrote. "Although the recent kidnappings in Colombia may give pause to the company's South American growth ambitions, we expect with additional security, these risks can be mitigated."
For Talisman, the two Sasol sales have allowed it to cash in on resources from deep within its portfolio.
"They have some value ascribed to an asset that the market didn't give them anything for," said Phil Skolnick, managing director of equity research for Canaccord Genuity.
"They're in the same situation as a lot of guys - like Encana Corp. There's so much gas out there. How do you monetize it?"
Nathan VanderKlippe