Sasol CEO David Constable
of the oil majors — or economists and traders, to be fair — seems to have anticipated this huge slide in the oil price. Why were you all so wrong-footed? A That crystal ball is an interesting one … clearly we did not pick exactly when it would happen but the good news is that we knew it would happen. In fact, over the past two and a half years we’ve been working on a programme that will take care of the company, and keep the company’s health intact for the eventuality of a low oil price or a strengthening rand. We knew it would come and that we couldn’t be complacent and not act. QBut
for the ethane cracker facility in Louisiana, you’re working on an estimate of about $70-$80 a barrel? A If you look at it over 35 years that would be a low case. But my point was that we could not be complacent and assume that Sasol could live off a $100 oil price and a weak rand and just sit back and ring the till. We decided to fix the roof while the sun was shining at Sasol and we went through a lot of pain to make our case for change internally and externally, because it’s come with a lot of workforce transition and restructuring and rightsizing of the company — and simplification for that matter. The business performance enhancement programme is going to deliver R4,3bn annually by FY16 and that’s built the foundation for us to go after the response plan of R30bn-R50bn in the next 30 months. There’s no way we could have done that if we hadn’t taken action much sooner than November 27, 2014 (when Opec decided to not cut back production). QYo
u’re quite cash flush — you have almost R50bn in hand, so why the need for this cash conservation programme? A We had a great half. Despite the oil price beginning to drop, we are in a good position. However, if you look at the next 30 months, we have a cracker in the US where we’ll be spending billions of dollars — so we want to keep our gearing within the target range of 20%-40%, and pay out a reasonable dividend. So, if you look at all that, we want to conserve cash prudently through the different levers we’re pulling: cash cost savings, capital portfolios, rightsizing and delays, capital structuring, the dividend policy, and working capital improvement.
We’re saying R30bn-R50bn because if the oil price starts to move faster than we expect, then we can feather off on the R50bn. We can make the R50bn, but we may come off it a bit and start spending on growth as required. QWhich
projects are being delayed? A US GTL is on hold: we’re going into FEED and that’s a very expensive exercise. It’s on the shelf, and still there for consideration later in the decade. In upstream in general, exploration and production (is a) very expensive exercise, that is why we’ve pulled back and all we are focusing on now is Mozambique. QYo
u’ve now changed your “progressive dividend policy”. Why didn’t you jettison it before now? A (The) policy dates back to just after the 2008 financial crisis. With record earnings in FY12, FY13 and FY14, there was no need to revisit our policy. Being in a commodity business, with the volatility that we’re seeing, we believe that moving away from a progressive dividend policy to the dividend cover range on HEPS makes a lot of sense and we can reward shareholders as earnings grow.
(The) policy provides flexibility for us to execute our growth programme, while still providing sustainable returns. QAre
your models too reliant on current price action (like the platinum majors who all based mine plans and exploration spend on a price of $1 800/oz)? A Obviously, you have to consider the different drivers of the oil price in the short term and in the medium to longer term. At Sasol, our short-term price outlooks are revised on a regular basis, while the medium to longer-term price views are reassessed less regularly. Forecasting the oil price trajectory remains challenging as the market is still in the process of determining a new short-term equilibrium price. Equally difficult is predicting when supply and demand will become more balanced. In parallel, storage