Talisman opts out of Sasol joint venture

Calgary, Alberta - Talisman Energy said on Thursday it decided not to develop a multibillion-dollar gas-to-liquids project in British Columbia with South Africa's Sasol [JSE:SOL], saying it would concentrate instead on drilling for oil and gas liquids as natural gas markets stagnate.

Talisman, Canada's fifth-largest independent oil explorer, and Sasol had been studying for more than a year the potential for such a venture to process gas from the Montney formation, and had set mid-2012 as a target to make a decision.

Such plants convert low-value natural gas into diesel or other fuels that command much higher prices. It is one of several ideas put forward by companies with massive shale gas reserves in North America facing depressed prices.

"Talisman's immediate focus is to accelerate investment in near-term liquids opportunities, with the goal of increasing liquids and oil-linked gas production to 300,000 barrels a day by 2015," Talisman Chief Executive John Manzoni said in a statement.

The decision to opt out of the proposed plant, which could have cost as much as C$10bn ($9.7bn), came as no surprise, said Michael Dunn, analyst with FirstEnergy Capital Corp.

"We couldn't figure out how they would go about funding it. Subsequent to Sasol entering the deal with them, Sasol's been pursuing a Gulf Coast GTL project," Dunn said. "I was not assuming that both of those would go ahead at the same time and my guess would be that the Gulf Coast one would be cheaper to build."

Investors welcomed the move. Talisman shares rose more than 4% to C$11.41 on the Toronto Stock Exchange. They are down 40% in the past year.

Andrew Potter, analyst with CIBC World Markets, said it was a prudent decision with inflation for major projects on the rise as western Canada's skilled labor supply is stretched due to booming oil sands investments.

The Canadian company said its decision to exit the project will not impact its exploration and production partnership with Sasol, the world's top maker of motor fuel from coal.

The deal includes 50% working interests in two natural gas assets and associated infrastructure in Talisman's Montney shale resources.