From the editor
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.