Sasol Delays U.S. Chemical Plant as Price Drop Spurs Savings

  • Company reviews project as Lake Charles units delayed to 2019
  • Sasol expects Brent oil prices to stay at $25-$40 a barrel

Sasol Ltd. will review the cost and timing of its $8.9 billion chemicals plant in the U.S. as slumping prices caused first-half profit at the world’s biggest producer of motor fuel from coal to drop 63 percent.

Some units converting ethane into plastics and other products at Lake Charles in Louisiana will start in 2019 instead of 2018, said Johannesburg-based Sasol, which aims to complete a review of the project by the middle of this year.

"There shouldn’t be a further slip unless we need to conserve more cash on the project and I don’t foresee that," Chief Executive Officer David Constable said in an interview Monday. 

Sasol increased cost-savings targets for the next three years after making cuts of 10.8 billion rand ($703 million) in the six months to Dec. 31. The company also took a 7.4 billion-rand impairment charge on its interests in Canada’s Montney shale-gas basin as it adjusts to lower crude and chemical prices.

"We’re being very conservative, so that allows us to protect the gearing, pay the dividend and make sure the credit rating stays where it is,” Constable said. Long term, Montney is a “great asset,” he said.

Sasol increased its cash-savings range to 65 billion rand to 75 billion rand by 2018 from 30 billion to 50 billion rand as Brent crude dropped by an average of 47 percent in the first half from a year earlier and a basket of commodity chemicals fell 23 percent. 

Weaker Rand

While the price declines were partly offset by the South African rand’s weakening against the dollar, net income declined by almost two-thirds to 7.3 billion rand in the six-month period. Sasol declared an interim dividend of 5.70 rand a share, down from 7 rand a year earlier.

Sasol shares climbed 1 percent to 482.98 rand as of 2:33 p.m. in Johannesburg, bringing this year’s gain to 15 percent.

Liquid-fuels production rose 4 percent from a year earlier while volumes of base chemicals declined. Earnings excluding one-time items fell 24 percent to 14.8 billion rand.

Sasol expects Brent to stay in a range of $25 to $40 a barrel, while margins for base chemicals will remain under pressure with lower sales volumes anticipated.

Oil Outlook

“Oil prices are currently subjected to sentiment-driven volatility and while some fundamentals indicate that the oil-industry cycle is poised to turn, it remains difficult to determine when this will happen," Sasol said in the statement.

Sasol last year delayed a decision on whether to build a gas-to-liquids plant in the U.S., which would have cost as much as $14 billion. Constable said there’s still potential for such plants when oil prices rebound, citing a possible expansion of the Oryx facility in Qatar should the nation make the gas available.