Sasol mulls reviving Louisiana GTL project at smaller scale

By PAUL BURKHARDT
Bloomberg

Sasol said measures that have already saved the world’s biggest producer of liquid fuels from coal 8.9 billion rand ($640 million) will protect it if oil prices remain low.

“We did the right things,” CEO David Constable said in an interview at Sasol headquarters in Johannesburg, referring to a cost-cutting and cash-conservation plan. “I think we’re in good shape,” even if oil stays at $40 a barrel, which is not expected, he said.

The program, which led to full-year profit dropping less than analysts expected, has put it “in the strongest position possible to respond to a turbulent macroeconomic environment,” the company said. Brent crude, to which Sasol’s revenue is linked, fell an average 33% in the period and traded at about $48.50/bbl on Monday.

Headline earnings fell 17% to 30.4 billion rand in the year ended June 30, the Johannesburg-based company said in a statement Monday. That exceeded the average estimate of 29.6 billion rand by seven analysts. The gross dividend declared was 11.50 rand/share, 15% less than last year’s.

The shares fell 1.7% to 418 rand by 4:15 p.m. in Johannesburg, after earlier climbing as much as 2%. The stock is down 3.1% this year.

Savings Target

The 8.9 billion rand of savings were close to the upper end of its forecast for the 2015 financial year. Sasol has targeted saving as much as 50 billion rand over 30 months starting in 2015 from the cost-containment and cash-conservation plan.

Sasol concluded its performance-enhancement program, which helped reduce headcount by 7% to 30,919 employees. It plans to save a further 1 billion rand annually by 2018, partly through freezing at least 1,000 non-critical vacancies.

The company sees oil trading at $50 to $60 in the year through June 2016. It expects the rand, which has weakened 17% against the dollar this year, to remain under pressure because of the pace of interest-rate increases in the US and concerns about the South African economy.

“Foreign-exchange and oil-price movements are outside of our influence, hence our focus remains firmly on factors within our control, which include volume growth, margin improvement, cost optimization and cash conservation,” it said. “Oil and other commodity price risk hedging are continuously evaluated.”

Sasol plans capital expenditure of 70 billion rand in the 2016 financial year and 65 billion in 2017, it said.

Weaker Rand

It increased liquid fuel sales volumes by 5% to a record 61.5 million bbl, it said. The drop in oil prices was partly offset by a weaker rand in the period.

The company is set to complete in 2018 an $8.9 billion plant in the US that will convert ethane into plastics and other products in the chemical industry’s largest bet on shale gas, it said. The Lake Charles ethylene project is “making good progress, with 80% of funding secured,” chief financial officer Bongani Nqwababa said in the statement.

In January, Sasol delayed a decision on whether to build a gas-to-liquids plant in the US, the nation’s first, which would have cost as much as $14 billion.

Constable said he was “pleased” with a study done on the GTL plant that looked at different scales for the project.

“The way we were thinking is rather than build it at 100,000 [bpd], we’d probably build” 55,000 [bbl] of capacity, reducing spending, he said. “I’m still bullish on GTL.”

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