Sasol targets investing further $3billion in Mozambique gas projects

March 11, 2014 | Budget & Investment, South Africa

Sasol CEO David Constable

Sasol CEO David Constable

Johannesburg, South Africa – South Africa multinational energy and chemicals group Sasol is looking at ways to monetise Mozambique’s oil and gas potential for the benefit of both South Africa and Mozambique, CEO David Constable said on Monday.

Although much attention is on Sasol’s plans for a large ethane cracker and gas-to-liquids projects in Louisiana, Mr Constable said the group had a two-pronged strategy to 2050, including investments in Southern Africa and North America.

In the six months to December, Sasol spent R20bn on sustaining and growth capital, of which 54% was spent in South Africa, 34% in North America and 7% in the rest of Africa, including Mozambique. For the full year, Sasol expects to spend R42bn, rising to R50bn in 2015, including the cost of the Louisiana project.

Acting chief financial officer Paul Victor said Sasol was in discussions with financiers on funding arrangements for Louisiana, and would update the market when it had more clarity.

Mr Constable said Sasol’s current and future investments in Mozambique totalled about $3bn, including a loop line on the Secunda pipeline and a 140MW gas-fired power station at Ressano Garcia. “In our discussions with the Mozambique government, we have said we believe it is important that all the natural gas does not get liquefied and sent to Asia,” Mr Constable said. “We need to monetise it in the country for regional markets, whether gas to liquids or making chemicals or generating electricity.”

For the six months to December, Sasol’s headline earnings rose 26% to R30.19 per share compared with the same period in 2012. A 40% higher dividend of R8 a share was declared. Cash flow from operations rose 50% to R28.1bn. Sasol benefited from a strong operational performance, a 19% weakening in the rand-dollar exchange rate, a flat Brent crude oil price, and improved chemicals prices. A weaker rand improves Sasol’s income but puts pressure on costs.

Imara SP Reid analyst Steve Meintjes said the hike in the interim dividend was encouraging and Sasol looked set to beat consensus for full-year headline earnings. Market consensus for the next few years was for a slight decline in earnings, possibly reflecting expectations of a more stable rand-dollar exchange rate and a weaker oil price.

Sasol’s South African energy cluster, which includes mining, gas, synfuels and oil, grew operating profit after remeasurement items 28% to R21.2bn. The international energy cluster made an operating loss of R6.6bn, but the chemicals cluster of polymers, solvents, olefins and surfactants doubled operating profit to R3.6bn.

The stake in the Oryx gas-to-liquids plant in Qatar is no longer proportionately consolidated, but equity-accounted. On higher volumes, Oryx grew operating profit 10% to R1.9bn.

As previously flagged, Sasol impaired its stake in the Montney shale gas assets in Canada by R5.3bn to reflect weak markets.

Sasol’s total costs rose 20% year on year, but adjusting for exchange rate movements, higher volumes and depreciation charges, were 2% above South Africa’s producer price inflation. A business performance enhancement programme is under way, with a target of sustainable cost savings of R3bn a year by the 2016 financial year. Mr Constable said this target was likely to be exceeded.