Chemicals and energy group Sasol is preparing to sell several assets, including its Canadian shale gas assets, following an overhaul of its corporate strategy, which eschews any further greenfield gas-to-liquids (GTL) investments in favour of smaller acquisitions and projects of between $500-million and $1-billion.
In future, the group’s growth would be targeted towards opportunities in the areas of specialty chemicals, Southern African fuel retailing and gas and oil exploration and production in Mozambique and West Africa. Oil refining, GTL, commodity chemicals and renewable-energy were no longer viewed as growth drivers. Sasol would, however, seek to leverage renewable-energy to enable it to reduce emissions.
The JSE-listed group’s decision to de-emphasise GTL marks a major departure from its previous strategy of seeking to internationalise the business on the back of the advances it had made in using the Fischer–Tropsch technology to convert coal and gas to fuels and chemicals.
In fact, the acquisition of Montney shale gas acreage, in northeast British Columbia, was strongly tied to the now abandoned plan to build a $13- to $15-billion GTL facility in Louisiana, in the US. Prior to that decision Sasol had also pulled back from several coal-to-liquid prospects in Asia and Africa.
The new strategy was unveiled to investors on Thursday by joint CEOs Bongani Nqwababa and Stephen Cornell, who also promised to balance future growth with improved returns and higher dividends.
$130M HURRICANE IMPACT
Following a capital-intensive phase, which has included the mega Lake Charles Chemicals Project (LCCP) under way in Louisiana, in the US, the new strategy sought to position the company for a lower-for-longer oil-price environment.
Sasol confirmed that the LCCP project cost had escalated by $130-million to $11.13-billion, after the project site was rocked not only by Hurricane Harvey, but also by Irma and Nate – events not catered among the contingencies when the project’s capital cost was revised from $8.9-billion to $11-billion in August 2016.
While describing the LCCP as a “game changer”, Cornell indicated that Sasol no longer intended pursuing wholly owned commodity chemicals megaprojects, but would rather leverage its mega complexes in Southern Africa and North America in the pursuit of value-based growth prospects.
The new strategy also sought to reward shareholders for their “patience” during the expenditure phase by stepping up dividend returns from around 36% currently, to 40% by 2022 and 45% thereafter, and by improving the return on invested capital to 12%.
The strategic rethink had been coupled to a review of 100 assets for classification as either core or noncore. The review was more than 50% complete and Nqwababa reported that some assets had already been identified for either closure or disposal. However, other than the Canadian shale gas assets, he said it was premature to disclose which other assets had been identified for sale.
However, given that Sasol had decided it would no longer pursue refining, the review could have implications for the Natref refinery, in the Free State, which is a joint venture with Total.
MOST ASSETS TO BE RETAINED
CFO Paul Victor said further announcements would be made during the 2018 calendar year, but stressed that by far the majority of group assets would be retained, with interventions planned for those core assets that were currently underperforming.
In parallel, Sasol had also identified several acquisition targets that it would pursue following the presentation of its new strategy to investors.
The strategy had been stressed tested against various oil-price scenarios, but was premised on a base case of oil trading at $60/bl over the period.
Crucially, the new corporate plan assumes no decoupling of overall transport fuel demand from global economic growth, despite the entry of electric vehicles and the expectation of further efficiency improvements to petrol engines.
However, Sasol does foresee a sharp fall off in the demand for diesel, which was a contributing factor to its decision to de-emphasise the role of GTL in its strategy.
“Overall, we are making a strategic shift from volume to value, while committing ourselves to a more balanced approach in returning value to shareholders through the cycle,” Victor explained.