Sasol slashes capital expenditure

By Tom Burgis in Johannesburg
Published: March 9 2009 15:55

Sasol, the world’s leading producer of liquid fuels from coal and gas, has reduced its capital expenditure for the coming three years by 40 per cent despite posting a sharp rise in profits.
Despite a 45 per cent year-on-year rise in net profit to R13.2bn ($1.2bn) for the six months to December, the company cut interim dividend from last year’s R3.65 per share to R2.5, and warned of falling earnings ahead, illustrating the abrupt change of fortune for oil companies, particularly purveyors of costly technologies such as Sasol.

The price of a barrel of Brent Crude oil, the industry benchmark, has fallen from $148 in July to an average of about $45 over the past month, as the world’s gas-guzzling countries fell into recession.
Pat Davies, Sasol chief executive, told the Financial Times the Johannesburg-based company had based its planning on the assumption that the oil price would remain between $40 and $45 per barrel for the next two years.
That spells trouble for a business that sells a technology which makes economic sense only when oil prices are high.
Using techniques pioneered by Nazi Germany to convert coal and gas resources into liquid fuel, Sasol operates a major synthetic fuel plant in its native South Africa and its new natural gas-to-liquid facility in Qatar is now operating at close to full capacity.
It has similar projects in various stages of development in India, China, the US, Uzbekistan and elsewhere, and Mr Davies said Sasol was in early talks about a project to convert Indonesia’s copious seams of lignite, a soft form of coal, into liquid fuel.
“I still believe these big projects are viable,” said Mr Davies. He said the company had not yet decided which initiatives would fall by the wayside as it trims capital expenditure budgets by 40 per cent from its earlier projections to R15bn annually.
Sasol, one of Africa’s biggest companies with a market capitalisation of R168bn, reduced its gearing – the ratio of net debt to equity – to 2.3 per cent from 20.5 per cent in the six months to December. “This is not the time to be running about to banks where there’s very little liquidity available to be funding your growth projects,” Mr Davies said.
Its shares closed 6.1 per cent lower at R246.47.
Copyright The Financial Times Limited 2009