Sasol Plunges Most Since 1998 on Writedowns, Lower Earnings

  • Impairments total $770 million after oil and gas prices slide
  • Company raises cost estimate for U.S. chemicals complex

Sasol Ltd. dropped the most in more than 17 years in Johannesburg trading after saying fiscal full-year profit will drop by as much as 30 percent following writedowns.

The South African fuel producer reported impairments totaling 11.5 billion rand ($770 million), citing the collapse in energy prices. The shares fell 11 percent to 432.52 rand by the close, the biggest plunge since Oct. 1, 1998.

“The volatile macroeconomic environment, in particular lower crude-oil prices, has had a significant impact on earnings,” Sasol said Monday in a statement. Headline profit will fall by 10 percent to 30 percent in the year through June from 49.76 rand a share a year earlier, it said. Analysts surveyed by Bloomberg had estimated a 26 percent slide to 36.58 rand.

Sasol impaired its share in the Montney shale-gas properties in Canada by 7.4 billion rand in December. It will now recognize a further writedown of about 4.1 billion rand because of lower natural-gas prices, which have fallen 12 percent since July last year. Brent crude, to which the producer’s revenue is linked, has dropped 20 percent in the period.

The Johannesburg-based company will give a further update on operational and financial performance in early August and is due to report full-year results Sept. 12.

Market Volatility

Sasol has implemented programs to conserve about 75 billion rand of cash through 2018. The company expects production volumes and cost reductions to be better than previous forecasts, it said Monday, adding that energy-market and exchange-rate volatility may further affect results. 

The company has 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, but also raised the projected cost of a chemicals complex in Lake Charles, Louisiana, to as much as $11 billion from about $8.9 billion amid construction delays.

Expected returns from the chemicals project, which will convert ethane into plastics and other products, have been reduced. Sasol now sees returns at around its weighted average cost of capital, which stands at about 10.6 percent, data compiled by Bloomberg show.

The company has already invested $4.5 billion in the Lake Charles development, with more than 40 percent of the project completed. It expects the ethane cracker to reach “beneficial operation” in the second half of 2018. 

“The change in the return profiles of the project have caught us a little flat-footed," Mohamed Kharva, a research analyst at Nedbank Group Ltd., said by phone. “It’s slightly negative and I think the share price has responded in that fashion.”

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