Sasol to conserve cash as oil price falls

Petrochemicals giant Sasol is anticipating that the volatility of the Brent crude oil price, coupled with the weakening of the exchange rate, will have a severe impact on its performance.The Brent oil price was under pressure and had fallen dramatically. At 5pm Wednesday it was quoted at $45.71 (R641.07) a barrel.Over the past year, Sasol’s share price has fallen by 21 percent.Sasol’s share price on Wednesday rose 0.16 percent to R416.44, which valued the company at R271 billion.Two days ago Cavan Hill, Sasol’s senior vice-president of investor relations, told journalists that a $1 barrel change in the oil price was expected to change profits by R810 million a year.Similarly, a 10 cent change in the rand/dollar exchange rate would have a R650m impact on the profits, Hill added.“We are exposed to the crude oil prices. A year ago Opec decided to defend its market share, resulting in the drop in crude oil prices. In response, we have a business plan to conserve cash,” Hill said.As part of the plan, Sasol put in place a cost savings programme, called a business performance enhancement programme, with a target of between R4bn and R4.3bn by the end of the 2016 financial year.Over and above this programme, it has implemented a low oil price response plan that will see it save an additional R1bn a year by the end of the 2018 financial year.Hill was speaking as the company unpacked its gas strategy in Johannesburg yesterday, and shifted its focus from coal to natural gas.“Gas is an important part of diversifying the energy mix, our goal is that it will play an integral part of the mix,” Hill said.Sasol is also developing an $8.9bn ethane cracker complex in Louisiana in the US, which is scheduled to begin operations in 2018 and expects the demand for natural gas to increase over the next five years.Together with cash-strapped state-owned PetroSA, Sasol was awarded an exploration right permit in the offshore Orange Basin on the west coast in July.The initial three-year exploration work programme comprises a firm airborne gravity and magnetic survey, and based on these results a 2D seismic survey.John Sichinga, the senior vice-president of Sasol exploration and production international, said the permit was a “work in progress”.“There has been a change of leadership; we have not met with the new leadership yet,” Sichinga said.Sasol expected that the Mozambican gas industry would play a bigger role in energy production after the company submitted its field development plan for the Pande and Temane production sharing agreement to the Mozambican authorities.The company was now waiting for approval from the government.Sasol also commissioned a 175 megawatt gas-fired power plant in Ressano Garcia, Mozambique, with its partner, the state-owned power utility EDM.At full capacity the plant will provide power to 2 million Mozambique citizens.It is also exploring for gas in Mozambique, South Africa, Canada and Australia.Sasol was the developer of stranded gas fields in Mozambique and had contributed around $600m to the country through royalties and taxes since 2004.