Sasol targets the Karoo

Brendan Ryan | Mon, 08 Mar 2010 08:37

[miningmx.com] -- SYNFUELS giant Sasol is looking at exploring for shale gas in the Karoo in partnership with two other groups - Statoil ASA and Chesapeake Energy Corporation.

Sasol views the exporation work as part of its strategy to acquire natural gas assets which could be feedstock for future potential gas-to-liquid (GTL) plants.

The move – announced in the group’s results for the six months to end-December which were released on Monday morning – is one of a string of decisions taken by Sasol over new ventures since about November last year.

According to the Sasol interim results statement, “SPI (Sasol Petroleum International) submitted a joint application with Statoil ASA and Chesapeake Energy Corporation in November 2009 for an onshore petroleum exploration right in the Karoo basin in the central region of South Africa.

“The application, for the proposed exploration of shale gas resources, is expected to take about 12 months to process."

Interviewed at Monday's press briefing on the results Sasol CEO Pat Davies said the move followed technological breakthroughs in North America making it easier to extract gas from shale structures.

"It's a radical shift and it will have an impact around the world," he commented. Davies also highlighted the widening margin that was developing between gas and crude oil prices which would make gas-to-liquids (GTL) projects attractive opportunities.

SPI MD Ebbie Haan declined to provide specific details on where the Karoo shale gas project was located and just how large it might turn out to be.

Haan described Chesapeake Energy as "a world leader in shale gas."

Sasol also reported that in December the project application report for the China coal-to-liquids (CTL) plant was submitted to the Chinese government for approval. The group added, “applications will also be submitted for the mines and catalyst plants required for the project during the 2010 calendar year.”

In addition to the Karoo project the group has also moved to acquire additional natural gas assets in Australia and Mocambique.

In Mocambique Sasol has acquired exploration rights for two offshore licences adjacent to offshore block 16/19. These are identified as Sofala and M-10 in which Sasol holds participating interests of 100% and 50% respectively.

Sasol CEO Pat Davies commented, “Success in these areas will allow for the possible development of the entire area including block 16/19.”

In December Sasol signed a farm-in agreement with Finder Exploration for a 45% participating interest in block AC/P 52 situated in the gas-rich Browse Basin of the North Western Shelf of Australia. This transaction was approved by the Australian government in January 2010.

Turning to the Waterberg, Davies said blasting and extraction of the 170,000t coal sample from Project Mafutha – a proposed greenfields coal-to-liquids plant - started in November. He added coal gasification trials are planned for the middle of the 2010 calendar year.

Sasol will also invest R8.4bn over the next four years to double hard wax production from its Sasolburg plant. The first phase of the project - which will add 40% to current output levels - will come into operation during the 2012 calendar year and the second phase will be completed in the 2014 calendar year.

Sasol’s attributable earnings for the six months to end-December dropped 52% to R6.3bn (previous comparable period – R13.2bn) with operating profit down 51% at R10.5bn because of lower crude oil prices, lower chemical prices and a 14% appreciation in the value of the rand against the US dollar.

Despite this Sasol has increased its interim dividend 12% to 280c a share “given the signals of recovery seen in the global economy and the proactive measures taken by management in response to the global economic crisis.”

Sasol said it expected to maintain its dividend policy within the targeted range of 2.5 times to 3.5 times annual earnings cover for the full year.

Turning to Sasol’s competition law issues Davies said, “we are focussed on further enhancing Sasol’s competition law compliance processes and systems throughout the group. There are matters that remain subject to investigation.

“As previously announced the South African Competition Commission has initiated investigations in respect of some of the industries in which Sasol participates including the South African piped gas, petroleum, fertilizer, wax and polymer industries.

“We continue to interact and cooperate with the Competition Commission in respect of the leniency applications as well as in the areas that are subject to Competition Commission investigations.”