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Sasol director resigns
Sasol announced today that Mr Greg Lewin will step down as director of the company on 1 April 2011 due to external business responsibilities that are requiring significantly more of his time than originally envisaged.
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Sasol hedges synthetic fuel & oil production
Sasol announced that it has entered into hedging transactions (zero cost collars) for 4.56 million barrels of oil (equivalent to circa 30% of its planned South African synfuels and West African crude oil production for the final quarter of the 2011 financial year). The zero cost collars expire on 15 June 2011. The hedge will provide downside protection should monthly average dated Brent crude oil prices decrease below USD85 per barrel (put level) on the hedged portion of production. Conversely, Sasol will incur opportunity losses on the hedged portion of production should monthly average oil prices exceed a volume weighted average USD172.77 per barrel (call level). Call levels between USD170 per barrel and USD175 per barrel were entered into. Sasol assesses the appropriateness of oil price hedging continuously and periodically enters into hedging transactions to improve the stability and predictability of cash flows as part of its risk management activities.
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Sasol acquires 50% in Talisman's Cypress A
Transaction highlights
- In strategic partnership with Talisman, Sasol entered the North American shale gas market in December 2010 through the acquisition of a 50% interest in the Farrell Creek assets, which transaction closed on 1 March 2011
- Sasol's second shale gas acquisition comprises a 50% interest in Talisman's Cypress A acreage for a purchase consideration of CAD1 050 million (R7 413 million)
- The 57 000 acres of land covered by Cypress A represents an estimated contingent resource of 11.2 trillion cubic feet ("tcf")
- Upon closing of Cypress A, Sasol will hold an estimated aggregate 10.4 tcf of contingent resources in the Montney Basin
- This transaction underpins the focussed growth within Sasol's upstream portfolio and accelerates the potential gas-to-liquids ("GTL") growth in North America.
Introduction
Sasol agreed on 7 March 2011 to acquire a 50% interest in the high quality Cypress A assets from Talisman for a total purchase consideration of CAD1 050 million (R7 413 million at the closing CAD/R exchange rate of 7.06) ("the transaction").
Rationale for the transaction
As described in the 20 December 2010 Farrell Creek announcement, shale gas has become an economically attractive alternative to conventional natural gas. The resultant impact on the North American gas market provides Sasol with an opportunity to accelerate growth within its upstream resource base by way of the acquisition of high quality natural gas assets, and also grow its international GTL portfolio. The company believes that there has been a structural shift in the dynamics between the natural gas price and oil price, making GTL an even stronger value proposition.
The Cypress A asset has the following attributes:
- Well developed thickness of the productive shale formations,
- Large contiguous acreage position,
- Close proximity (25 miles) to the recently acquired Farrell Creek assets, allowing optimisation and synergies.
- Access to existing and planned pipeline infrastructure.
The above attributes make the asset attractive both on a stand-alone basis as well as in combination with the Farrell Creek assets. As disclosed earlier, it is Sasol and Talisman's intention to pursue the establishment of a GTL plant in western Canada. At present the parties are jointly conducting a feasibility study for this purpose. The combination of the Cypress A acquisition with the Farrell Creek acquisition will thus allow scalability of such a GTL plant.
Details of the transaction
Talisman, listed on the Toronto and New York stock exchanges, is a global, diversified, upstream oil and gas company with its headquarters in Canada. The company is an established player in the North American unconventional gas resource industry with strong operator skills and is committed to operating in a safe, environmentally responsible manner and to maintaining good working relationships with local communities near the areas of its operations. Talisman is a major producer of gas in the Marcellus shale and also holds leading positions in the Montney, Utica, and Eagle Ford shales.
Transaction description
Talisman has agreed to sell a 50% interest in Cypress A to Sasol. An appropriate transaction structure is still being investigated. Consistent with the Farrell Creek acquisition, Talisman will continue to operate Cypress A and any future associated gas gathering systems and processing facilities.
Description of assets
The Montney Basin is located in Canada's western Alberta and north-eastern British Columbia. Its primary shale productive formations are of mid-Triassic age and found at depths of around 8 000 feet. The average shale thickness in the Cypress A acreage is 1 600 feet. The 57 000 acres of Cypress A is estimated to contain a contingent resource of 11.2 tcf, within a range of 5 tcf to 20 tcf. The timing of the full scale development of Cypress A is subject to additional studies, which will take overall technical maturity, pipeline evacuation capacity and marketing options into consideration. This will allow the partners to optimise capital expenditure and maximise return for the integrated joint venture. At present the Cypress A asset is producing at a rate of 18 million standard cubic feet ("mmscf") per day into existing pipeline infrastructure. Hence, only a small percentage of the contingent resources of Cypress A is envisaged to be included as reserves in Sasol's annual report on Form 20-F as filed with the US Securities and Exchange Commission at the end of its current financial reporting year.
Purchase consideration
Payment of the purchase consideration of CAD1 050 million will be structured similar to the Farrell Creek acquisition with an upfront cash payment of 25% (CAD263 million) and the remaining 75% (CAD787 million) being paid in the form of a capital carry of Talisman's 50% share of future capital commitments of the integrated venture development area until such time that the purchase consideration has been paid in full. Following the settlement of the Cypress A carry arrangement, each partner will fund its 50% share of the future development of the acreage. The aggregate purchase consideration will be funded from surplus cash available within the Sasol group.
Suspensive conditions
The Transaction is subject to the conclusion of the definitive agreements and regulatory approvals, including South African Exchange Control approval. It is envisaged that closing will take place in the third quarter of the 2011 calendar year.
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Sasol -- progress on chief executive succession
As announced previously, Sasol's board commenced a process to identify a successor to the current chief executive of Sasol, Mr Pat Davies. Mr Davies reaches the normal retirement age for Sasol executives in March this year and as previously announced it was agreed to extend his tenure as chief executive for up to a year after his normal retirement date until his successor has been appointed. The board has made good progress in finding a successor and it is envisaged that a further announcement will be made by the end of June 2011.
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Sasol retains shale gas appetite
According to Business Day, controversy around the exploration for shale gas done little to dampen Sasol's aspirations in that area, with CEO Pat Davies saying that the group was on the lookout for more gas acquisitions. Mr Davies commented that shale gas was the "game changer" in the US energy landscape. "The unanticipated success of shale gas in the US has completely changed North American gas market dynamics." He said horizontal drilling, which is used in shale gas exploration, has been on the increase in North America. Sasol stands to reap huge financial rewards from the pursuit of natural gas because of the gap between the prices of gas and oil.
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Sasol completes Canadian acquisition
Shareholders of Sasol were referred to the SENS announcement released on 20 December 2010 regarding the proposed acquisition by Sasol of a 50% strategic interest in the high quality Farrell Creek Assets from Talisman Energy Inc. for a total purchase consideration of CAD1 050 million (R7 549 million at the closing CAD/ZAR exchange rate of R7.19/CAD1.00 on 28 February 2011) with effect from 1 January 2011 (the "transaction").
The transaction was subject to various suspensive conditions referred to in the announcement released on SENS on 20 December 2010. Sasol shareholders are advised that all the suspensive conditions to the Transaction have been fulfilled and that the transaction closed on 1 March 2011 ("the closing date"). The final aggregate consideration amounts to CAD1 025 million (R7 369 million comprises an initial purchase price for the Farrell Creek Assets of CAD237 million (R1 704 million), which was paid in cash on the closing date, and CAD788 million (R5 665 million) in the form of a commitment to fund 75% of Talisman's 50% portion of certain future development costs to further develop the Farrell Creek Assets until such time that the aggregate purchase consideration has been paid in full.
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| Closing price data source: JSE Ltd. All other statistics calculated by ProfileData. |
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