Sasol concludes their Canadian gas acquisition

On Friday Sasol announced the completion of a second acquisition of a 50% participation interest in the Montney Gas Basin in Canada. This was communicated to shareholders in the beginning of March but was subject to certain conditions which have all been fulfilled and the transaction has officially closed. It is by no means a small transaction. CAD$1050 million or R7bn is the size of a Grindrod or a JD Group.

Interestingly though R1.7bn of that is for the purchase of the actual asset. The other R5.3bn is put forward as a commitment to fund 75% of Talisman's 50% portion of future developments until the aggregate purchase has been fully paid. This sounds complicated but basically they are taking a 50% share in Talismans Montney Basin asset where they also bought a stake in Talisman's Farrell Creek last year. This is on top of a forward commitment to jointly develop the asset.

We are long term holders of Sasol but over the last year or so have raised some concerns over the environmental impact of their coal to liquids (CTL) processes. The CTL project plans in Asia have hit some headwinds and global awareness of environmental concerns as well as increasing regulations is one of the main reasons. This is happening locally to. South Africa has set an ambitious goal of reducing their carbon footprint by 34% in 10 years. Other than Eskom, Sasol are by far our biggest polluters. (Sasha – I think they are one of the biggest corporate polluters in the world).

This is why they are not only diversifying globally but also investing massively in Gas to Liquids (GTL). The Carbon Footprint of GTL is 30% that of CTL. No hiding the benefits there. Gas is also being found in abundance and the extracting technology is improving more and more. The opposite is happening with oil reserves. This means that while the oil price is increasing the gas price is decreasing, a perfect scenario for a company with the technology to produce oil from gas.

The technology is expensive however and that is why we have these joint ventures. Sasol has the GTL technology, Talisman have the assets and the extraction expertise. Both finance the operation and we have a deal. We also know the resistance Shell are receiving with regards to fracking in the Karoo. Hence the international expansion. I don't think Sasol are going to have access to local gas anytime soon although I believe that in the long run we will see extraction of those reserves. This is because the benefits of having such a sort after energy source will out way the negatives. If they can do it successfully in Canada and the US then why not here?

To conclude we are very happy that Sasol are growing their gas portfolio and shifting their focus to a more environmentally friendly alternative. Another example of innovation shifting companies with the times.