If Sasol (NYSE:SSL) has its way, though, the road to change may be in sight.
A Tie-Up with Talisman
Sasol, the large South African synfuel specialist, announced an agreement on Monday whereby it was acquiring a 50% operating interest in one of Talisman's (NYSE:TLM) shale gas assets. Sasol is paying a bit more than $1 billion for 50% of the Farrell Creek development in the Montney Shale. The way the deal is structured is a little unusual, though. Sasol will pay $263 million in cash upfront, and then fund three-quarters of Talisman's development costs up to the announced purchase price.
The Asset
Montney is a bit like Canada's Barnett, Haynesville or Marcellus - a geological formation that contains huge amounts of hydrocarbon resources (natural gas, mostly), but requires advanced exploitation technologies to access. According to reports, this development may contain upwards of 9.6 trillion cubic feet of natural gas - clearly a sizable reserve base. An important part of the asset, though, is the fact that it is also relatively close to established pipeline infrastructure - given the problems that companies like Ultra Petroleum (NYSE:UPL) used to have in getting full value for its gas (due to a lack of infrastructure), that is not a trivial factor.
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4 comments:
Synfuels have historically been one of the few alternative energy schemes that actually work effectively. But they have only been employed by countries with no other energy options, i.e. the Nazis in WWII and Apartheid-Era South Africa. I'm guessing their "last-ditch" nature is due to higher cost and that at some point, the increasing price of oil combined with decreasing synfuel production costs may make them a viable competitor in many markets. Perhaps Sasol's actions here indicate they believe that time is close at hand.
Right. Most of these synfuels have been based on Fischer-Tropsch and that has certain limitations.
But ... when the spread between natural gas and oil gets so high, some of these things start making economic sense.
I've owned SSL since Felix Zulauf spoke about it in a Barrons Roundtable some number of years ago. It has been a decent investment over the years. I wouldn't buy more here but if the price were to drop, I'd definitely consider adding more.
It's not my favorite South African stock, but it's a relatively easy one to hold. I seem to have miserable timing with it, though. I always dismiss it before it goes up 20% plus and always get really excited right before it drops...
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