Sasol agrees to acquire 50% interest in Talisman's Cypress A shale assets covering 57,000 acres of land for C$1.05B

JOHANNESBURG , March 8, 2011 (press release) – Sasol's (NYSE:SSL - News) senior management will host a conference call for investors and analysts at 4pm (SA) to discuss the announcement and answer questions.

Transaction highlights

* in strategic partnership with Talisman, Sasol entered the North American shale gas market in December 2010 through the acquisition of a 50% interest in the Farrell Creek assets, which transaction closed on 1 March 2011;
* Sasol's second shale gas acquisition comprises a 50% interest in Talisman's Cypress A acreage for a purchase consideration of CAD$1 050 million (ZAR7 413 million);
* the 57 000 acres of land covered by Cypress A represents an estimated contingent resource of 11,2 trillion cubic feet ("tcf");
* upon closing of Cypress A, Sasol will hold an estimated aggregate 10,4 tcf of contingent resources in the Montney Basin; and
* this transaction underpins the focussed growth within Sasol's upstream portfolio and accelerates the potential gas-to-liquids ("GTL") growth in North America.

1. Introduction

Sasol agreed on 7 March 2011 to acquire a 50% interest in the high quality Cypress A assets from Talisman for a total purchase consideration of CAD$1 050 million (ZAR7 413 million at the closing CAD/ZAR exchange rate of 7,06) ("the Transaction").

2. Rationale for the Transaction

As described in the 20 December 2010 Farrell Creek announcement, shale gas has become an economically attractive alternative to conventional natural gas. The resultant impact on the North American gas market provides Sasol with an opportunity to accelerate growth within its upstream resource base by way of the acquisition of high quality natural gas assets, and also grow its international GTL portfolio. The Company believes that there has been a structural shift in the dynamics between the natural gas price and oil price, making GTL an even stronger value proposition.

The Cypress A asset has the following attributes: (i) well developed thickness of the productive shale formations, (ii) large contiguous acreage position, (iii) close proximity (25 miles) to the recently acquired Farrell Creek assets, allowing optimisation and synergies and (iv) access to existing and planned pipeline infrastructure.

The above attributes make the asset attractive both on a stand-alone basis as well as in combination with the Farrell Creek assets.

As disclosed earlier, it is Sasol and Talisman's intention to pursue the establishment of a GTL plant in western Canada. At present the parties are jointly conducting a feasibility study for this purpose. The combination of the Cypress A acquisition with the Farrell Creek acquisition will thus allow scalability of such a GTL plant.

3. Details of the Transaction

3.1 Seller

Talisman, listed on the Toronto and New York stock exchanges, is a global, diversified, upstream oil and gas company with its headquarters in Canada. The company is an established player in the North American unconventional gas resource industry with strong operator skills and is committed to operating in a safe, environmentally responsible manner and to maintaining good working relationships with local communities near the areas of its operations.

Talisman is a major producer of gas in the Marcellus shale and also holds leading positions in the Montney, Utica, and Eagle Ford shales.

3.2 Transaction description

Talisman has agreed to sell a 50% interest in Cypress A to Sasol. An appropriate transaction structure is still being investigated. Consistent with the Farrell Creek acquisition, Talisman will continue to operate Cypress A and any future associated gas gathering systems and processing facilities.

3.3 Description of assets

The Montney Basin is located in Canada's western Alberta and north-eastern British Columbia. Its primary shale productive formations are of mid-Triassic age and found at depths of around 8 000 feet. The average shale thickness in the Cypress A acreage is 1 600 feet. The 57 000 acres of Cypress A is estimated to contain a contingent resource of 11,2 tcf, within a range of 5 tcf to 20 tcf.

The timing of the full scale development of Cypress A is subject to additional studies, which will take overall technical maturity, pipeline evacuation capacity and marketing options into consideration. This will allow the partners to optimise capital expenditure and maximise return for the integrated joint venture. At present the Cypress A asset is producing at a rate of 18 million standard cubic feet ("mmscf") per day into existing pipeline infrastructure. Hence, only a small percentage of the contingent resources of Cypress A is envisaged to be included as reserves in Sasol's annual report on Form 20-F as filed with the US Securities and Exchange Commission at the end of its current financial reporting year.

3.4 Purchase consideration

Payment of the purchase consideration of CAD$1 050 million will be structured similar to the Farrell Creek acquisition with an upfront cash payment of 25% (CAD$263 million) and the remaining 75% (CAD$787 million) being paid in the form of a capital carry of Talisman's 50% share of future capital commitments of the integrated venture development area until such time that the purchase consideration has been paid in full.

Following the settlement of the Cypress A carry arrangement, each partner will fund its 50% share of the future development of the acreage.

The aggregate purchase consideration will be funded from surplus cash available within the Sasol group.

3.5 Suspensive conditions

The Transaction is subject to the conclusion of the definitive agreements and regulatory approvals, including South African Exchange Control approval.

It is envisaged that closing will take place in the third quarter of the 2011 calendar year.

4 Pro forma financial effects

The unaudited and unreviewed pro forma consolidated financial effects of the combined Farrell Creek and Cypress A transactions (the "Combined Transaction") on Sasol's consolidated interim results for the six months ended and financial position as at 31 December 2010, calculated in terms of the provisions of the JSE Limited Listings Requirements, before and after the Combined Transaction, are provided below.

The Combined Transaction is aggregated for purposes of the unaudited and unreviewed pro forma consolidated financial effects because of their conjoined influence and as they were entered into within a period of twelve months of each other with the same counter party.

The unaudited and unreviewed pro forma consolidated financial effects of the Combined Transaction are the responsibility of the directors of Sasol. The unaudited and unreviewed consolidated financial effects have been presented for illustrative purposes only, and, because of their nature, may not fairly present Sasol's financial position, changes in equity, results of operations nor cash flows after the implementation of the Combined Transaction.

The unaudited and unreviewed pro forma consolidated financial effects have been prepared on the basis that the Combined Transaction had been fully implemented on 1 July 2010 for Income Statement purposes and as at 31 December 2010 for purposes of the Statement of Financial Position. It does not purport to be indicative of what the consolidated financial results would have been had the Combined Transaction been implemented on a different date.

The unaudited and unreviewed pro forma consolidated financial effects of the Combined Transaction are presented in a manner consistent with Sasol's accounting policies applied in preparation of the reviewed interim financial results for the six months ended 31 December 2010.

The unaudited and unreviewed pro forma consolidated financial effects of the Combined Transaction are based on the assumptions set out in the notes below.

Notes and assumptions:

1. extracted from the Sasol interim financial results for the six months ended 31 December 2010 as published on 7 March 2011;

2. the unaudited and unreviewed pro forma consolidated financial information after the Combined Transaction is based on the following assumptions:

a. the Combined Transaction was implemented with effect from 1 July 2010 for the calculation of the Income Statement effects;

b. include the proportionate share (50%) of income and expenditure relating to the Combined Transaction for the six months ended 31 December 2010, net of taxes;

c. include the estimated transaction costs of a non-recurring nature, net of taxes;

d. the reduction in interest income, net of taxes, as a result of cash being utilised to fund the Combined Transaction, calculated at the average of the relevant prevailing money market deposit interest rates applicable to Sasol over the six month period ended 31 December 2010; and

3. The Combined Transaction has a marginal impact on Sasol's net asset value per share and net tangible asset value per share. The amount of the combined acquisition cost accounted for is equivalent to the cash payments that would be due on closing of the Combined Transaction. The tax allowances and accounting principles applied are also dependent on final structuring of the Combined Transaction.

The unaudited and unreviewed pro forma consolidated financial effects have not been reviewed nor reported on by Sasol's external auditors.


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