Global oil and gas group Sasol will no longer invest in mega-projects on its own as it did in the past as it targets a greater balance between growth and shareholder returns in future, executives say.
Sasol has been investing substantially in growth and expansion projects in the past few years, including oil and gas production in Mozambique and the Lake Charles Chemical Project (LCCP) in the US.
The cost of LCCP, an ethane cracker and chemicals complex, has escalated to $11.13bn from $7bn originally and subsequent revisions to $9bn and $11bn.
Joint president and CEO Stephen Cornell said the cost of Hurricane Harvey and the two subsequent hurricanes that hit the Gulf Coast in August had raised costs by another $130m to $11.13bn. Although the budget included a contingency, this did not cover such extreme once-off events. Addressing investors at its annual capital markets day, Cornell said Sasol’s future growth would be focused on sectors where it had strong capabilities.
It would expand activities in high-value speciality chemicals, pursue disciplined growth in upstream exploration and production in Mozambique and selected West African countries, and grow fuel retailing in SA.
Bongani Nqwababa, joint president and CEO, said Sasol would not pursue greenfields gas to liquids projects (GTL), grow its crude oil refining capacity or invest in mega-scale commodity chemicals beyond LCCP or in renewables except for its own operations.
Sasol has identified about 100 assets for retaining and fixing or selling and has completed about half of those reviews. It will be keeping most of these assets and has identified steps to improve them. Those that will be sold include the Canadian shale gas assets, which would have supplied feedstock for a GTL plant.
Nqwababa said Sasol had targets over two time frames. Between now and 2022, it aimed to grow return on invested capital in dollars by at least 2%, cut gearing to 30% and increase the dividend payout to 40% of earnings. From 2022 it would increase the dividend payout to 45% of earnings.
Abdul Davids, head of research at Kagiso Asset Management, said on balance, there were more positives than negatives from the presentations.
Strong positives were the focus on capital discipline and increased returns to shareholders. It was also positive that Sasol was at cash breakeven at $35/bbl and cash-generative at $40/bbl, showing a lot of work had been done to cut costs and enhance performance, he said.
One disappointment was the increase in the cost of LCCP after Hurricane Harvey as the market had understood additional costs had been absorbed.
On Thursday, the group increased its revolving credit facility to $3.9bn, from $1.5bn and extended the maturity to five years.