Johannesburg - Sasol shares tumbled as much as 12.58 percent yesterday after the chemicals and energy company announced that it expected a big drop in earnings in the financial year.
Shares closed 10.82 percent down at R432.52.
The company had earlier in the day issued a trading statement for the year to June 30, in which it announced that headline earnings for the year were expected to decrease by between 10 percent and 30 percent, compared with the same period last year. Earnings per share, on the other hand, were expected to fall by as much as 73 percent, Sasol said.
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Sasol attributed the drop to lower crude oil prices. A R7.4 billion impairment of Sasol’s share in the Montney shale gas asset in Canada last December had affected earnings per share, Sasol said.
“Due to a further decline of natural gas prices in North America, we will recognise an additional impairment of approximately R4.1bn, resulting in a total impairment of R11.5bn. This impairment contributed to a 39 percent decrease of (earnings per share),” Sasol said.
Richard Weissenburg, the business unit leader for Africa of chemicals, manufacturing and food at Frost & Sullivan, said yesterday that while it was difficult to forecast the crude oil price with certainty, the prices could reach $70 (R1 055) a barrel by the end of this year if the trend so far this year continued. “After that, it is anybody’s guess.”
He said the oil price was unlikely to reach the $100 a barrel mark soon. “I do not even think the oil industry expects that,” he said. The Brent crude oil price yesterday afternoon was trading at $50.58 a barrel.
Sasol also announced cost escalation in its multibillion-dollar project, the Lake Charles Chemicals Project in the US. The cracker facility will convert ethane into ethylene, which is used in the manufacturing of plastic products.
Increase of capital
Sasol said a preliminary finding of the project’s review pointed to a possible increase of capital expenditure to $11bn. The project, which was initially estimated at between $5bn and $7bn, would boost Sasol’s chemical production capacity in the US. It included an ethane cracker that would produce 1.5 million tons of ethylene annually and six chemical manufacturing plants.
Sasol attributed the cost increases to a combination of higher-than-expected rainfall, higher labour costs, certain of the lump-sum bid contract prices being higher than originally estimated, as well as quantities of bulk materials being in excess of those included in the original estimate.
Nedbank Capital analyst Mohamed Kharva said Sasol shareholders had a reason to be concerned, “considering the project cost has increased approximately 20 percent from $9.1bn to $11bn”.
While Sasol has delayed some of its projects as part of a response plan to the relatively low crude oil prices, it has proceeded with the Lake Charles Chemicals Project.
“The company is continuing with its previously announced low oil price response plan, and will manage its balance sheet to incorporate the current estimated capital expenditure. The funding strategy has not changed as a result of the higher capital expenditure estimates. The project will continue to be funded from existing facilities and ongoing group cash flow,” Sasol said.
Sasol said there were no major or unexpected changes in the scope of the project. “Overall construction on the project continues on all fronts, with most engineering activities nearing completion and procurement well advanced.”
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