From the ed­i­tor

Finweek English Edition - - CONTENTS - JANA MARAIS

it is al­most im­pos­si­ble not to crit­i­cise David Con­sta­ble, whose con­tract as Sa­sol’s CEO ends on 30 June, as just about ev­ery­thing seems to be go­ing wrong with his North Amer­i­can di­ver­si­fi­ca­tion strat­egy. News that the group will spend $2.1bn more on its eth­ane cracker in Louisiana and take yet an­other multi­bil­lion-rand im­pair­ment on its Cana­dian shale gas as­sets sent the group’s share price plum­met­ing on 6 June. Share­hold­ers, who have re­warded Con­sta­ble hand­somely for his trou­bles (his pay in the first four years of his con­tract, to end June 2015, to­talled R187.3m), are un­der­stand­ably quite livid. At the time of writ­ing, the share price was roughly 32% down from its 2014 high of R632.36.

But if this was 2011 and you had just been hired to run Sa­sol, what would your plan look like?

Oil prices av­er­aged more than $110 a bar­rel that year; when Con­sta­ble took the job in June 2011, a dol­lar cost R6.76, a palat­able price for cor­po­rates on the prowl in­ter­na­tion­ally. (It is also worth not­ing that the rand and oil prices are two of the most im­por­tant driv­ers of Sa­sol’s fi­nan­cial per­for­mance – and both are very much outside of the com­pany’s con­trol.) More than 80% of prof­its came from South Africa, where reg­u­la­tory un­cer­tainty has been mak­ing in­vestors skit­tish, while new leg­is­la­tion (e.g. around air qual­ity and min­ing) con­tin­ues to pose a real risk to your busi­ness model. A shale boom in the US has been trans­form­ing the global en­ergy sec­tor, and US states, like Louisiana, have been ea­gerly rolling out in­cen­tives for new in­vestors.

And so Con­sta­ble, like many other CEOs of multi­na­tional en­ergy com­pa­nies, took a ma­jor bet on shale en­ergy in North Amer­ica. Few of them, one imag­ines, ex­pected an oil price of below $30 a bar­rel by Jan­uary 2016.

What Con­sta­ble and his team should be held ac­count­able for is the mas­sive cost in­crease and de­lay on the Louisiana cracker, which will hope­fully start us­ing that plen­ti­ful, cheap US nat­u­ral gas in 2019 to pro­duce chem­i­cals.

The ma­jor risk has al­ways been that there will be cost over­runs and de­lays – and Sa­sol has never had a good track record with getting ma­jor pro­jects com­pleted on time and within bud­get. Any­one re­mem­ber the mess back in the day with its gas-to-liq­uids plant in Qatar?

Judg­ing him on 8 June 2016, Con­sta­ble was prob­a­bly a fool to bet the farm on North Amer­ica. But let’s play this game again in 2020.

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