Sasol Ltd. (SOL), the largest producer of motor fuels from coal, cut back plans to tap natural gas from shale in Canada because prices for the commodity are too low.
“Our development plan for 2012 has been curtailed to respond to the current low gas prices, but this allows for further appraisal,” Chief Executive Officer David Constable said today at a presentation in Johannesburg.
Sasol bought half of Talisman Energy Inc. (TLM)’s Cypress A and Farrell Creek operations in the Montney shale basin last year, anticipating higher profits from a move to gas-based fuel production. The South African company, studying the possibility of building a gas-to-liquids plant in western Canada, joins Chesapeake Energy Corp. (CHK) in reducing output plans as prices drop.
“Our assessment of the gas reserves in Montney remains intact,” Constable said. “The medium- and long-term ramp-up profile will be fully aligned to feed our GTL aspirations.”
Gas prices on the New York Mercantile Exchange are at their lowest in a decade, and were down 3.5 percent today as of 1:17 p.m. local time. Sasol expects prices to stay low for at least the next year, Chief Financial Officer Christine Ramon said in an interview.
The Canadian assets posted an operating loss of 373 million rand ($49 million) in six months through December, Group General Manager Lean Strauss said, citing lower prices, depreciation and foreign-exchange losses. The company also cut its capital expenditure budget for the fiscal year by 2 billion rand to 29 billion rand as it reduces spending in Canada.
“The biggest challenge we’re facing is the gas prices in the U.S.,” Strauss said. “They’ve dropped significantly. We’ll have to overcome that in the short term. It all depends on how gas prices move in the next year.”
Sasol fell 2 percent to 384.82 rand at the close in Johannesburg, giving it a market value of 248 billion rand.
The company, operating in countries from the U.S. to Iran, Qatar and Mozambique, said fiscal first-half net income advanced 83 percent to 13.9 billion rand after oil prices climbed and its local currency weakened. Sasol earned 66 percent of operating profit from the South African energy business, the Johannesburg- based company said in a statement. It increased its first-half dividend by 84 percent to 5.70 rand a share.
A strike contributed to a 1.3 percent decline in output at the South African synthetic-fuels operation in the period, and group production shrank as demand weakened, Sasol said.
The company uses proprietary Fischer-Tropsch technology to make gasoline, diesel and jet fuel from the coal it mines in South Africa and from gas extracted below the ocean floor near Qatar. It’s diversifying its crude oil purchases from Iran amid the threat of trade curbs and oil sanctions, it said.
Preliminary talks to divest a 50 percent stake in the Arya Sasol Polymer Co., which it co-owns with Iran’s Pars Petrochemical Co., are continuing, Ramon said. The Arya assets have a so-called carry value of about 4 billion rand, she said.
Chesapeake, the second-largest U.S. gas producer, said this year it would reduce output, idle rigs and lower spending on fields by 70 percent after prices slumped. ConocoPhillips, Cabot Oil & Gas Corp. and EQT Corp. have also said they may scale back drilling.
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