Gi­uli­etta Talevi

Financial Mail - Investors Monthly - - Contents - David Constable CEO: Sa­sol

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

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