2nd UPDATE: Sasol Buys 50% Of Talisman Shale Gas Asset

Sasol Ltd. (SSL), the world's largest producer of motor fuels from coal, said Monday it is buying shale gas assets in western Canada for C$1.05 billion and is considering building a plant there to turn the gas into motor fuels.

An agreement to partner with Canada's Talisman Energy Inc. (TLM) is the latest in a string of deals involving foreign companies targeting North America's unconventional energy resources.

Sasol uses technology it developed to transform gas and coal into gasoline, diesel and other fuels at plants in South Africa, Qatar and Nigeria.

The Johannesburg-based company said it has agreed to buy half of Talisman's Farrell Creek shale gas assets in British Columbia's Montney basin, significantly boosting its natural gas resources. It will make a cash payment of C$262.5 million and fund 75% of Talisman's share of the costs to develop the project until the balance of the purchase price is paid.

The news helped lift Sasol's shares, which at 1438 GMT were trading 1.2% higher at 335.45 rand.

The Farrell Creek assets cover more than 51,000 acres of land and an estimated resource of 9.6 trillion cubic feet of gas equivalent, or 22% of Talisman's resource potential in the area, the companies said.

Leon Strauss, Sasol's executive for new business and technology, told reporters during a conference call the two companies will conduct a feasibility study on building a gas-to-liquid fuels plant in western Canada. They also will explore other natural gas collaborations in western Canada and elsewhere, he said.

Production at Farrell Creek is expected this year at between 40 million and 60 million cubic feet equivalent a day and Talisman said its facilities at the asset have been expanded to 120 million cubic feet equivalent a day.

"This is a strategic move toward unlocking some of the value of our Montney assets for us and our new partner, consistent with the strategy of derisking and developing Talisman's very large shale opportunities in the region," said John Manzoni, president and chief executive of Talisman.

Shale gas is clean natural gas produced from a type of sedimentary rock, mainly consisting of clay and some organic matter. It has become an increasingly important source of natural gas in the U.S. over the past decade, and interest has spread to other finds.

Sasol's Strauss said development work has begun on the Karoo Basin in South Africa, where the government has awarded a permit to study the area with partners Statoil ASA (STO) and Chesapeake Energy Corp. (CHK). The company also is waiting for a response from China's government to a proposed multibillion dollar coal-to-liquids plant in Ningxia.

-By Robb M. Stewart, Dow Jones Newswires; +27 11 783 7848; robb.stewart@dowjones.com

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