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Sasol to divest Canada shale assets under revised strategy

November 23, 2017
Energy & Chemical Value Chain

Sasol (Johannesburg, South Africa), at its capital markets day held on Thursday, unveiled a revised corporate strategy that it says sets a clear path for sustainable growth and accelerated shareholder returns.

The company, as part of these plans, will divest its shale gas assets in Canada and halt its previously announced gas-to-liquids (GTL) megaproject in the United States. Joint president and CEO, Stephen Cornell, said, “In developing our strategy, we considered both the opportunities and risks we face, informed by developments in the external environment. It is clear that megatrends influential to our business will result in greater demand for chemicals and energy products in key markets we serve.”

The company plans to enhance its businesses by leveraging core strengths in specialty chemicals, exploration and production (E&P), and retail fuels, with a greater focus on discipline in capital allocation, Cornell says.

Sasol’s other joint president and CEO, Bongani Nqwababa, says the company has completed reviews on more than half of its worldwide assets, underpinned by a drive to improve performance. The reviews identified the Canadian shale gas asset as non-core. Sasol will commence a structured divestment process involving Progress Energy (Raleigh, North Carolina), the partner in the asset. Sasol’s chemicals business, meanwhile, will progressively grow its portfolio of specialty chemicals under the plan. “Our push into specialty chemicals is further supported by the benefit of the scale and cost advantage we enjoy through our investments in commodity chemicals in South Africa and North America. We will take full advantage of these large, cost competitive facilities to grow our specialty chemicals portfolio,” Cornell says.

In the upstream business, the company will pursue progressive, disciplined growth in E&P in Mozambique and selected countries in West Africa, to expand production levels with a bias to liquid plays.

“From now until 2022, Sasol will focus on delivery of the Lake Charles chemicals project [LCCP] in the US and the production-sharing agreement in Mozambique, while extracting further value from our existing portfolio of diversified assets. In this period we are targeting an improvement in return on invested capital [ROIC] of at least 2% on our financial year 2017 base. This will be achieved through continuous improvement that will encompass various initiatives across our value chain,” the company says. “Beyond 2022, we will focus on building an investment portfolio of smaller to medium-sized organic and inorganic opportunities, in the range of $500 million to $1 billion. This will be directed towards our growth focus areas in specialty chemicals, E&P, and retail fuels. Based on our scenarios and modeling, we believe we can deliver at least 12% ROIC and 5% earnings before interest and tax [EBIT] growth through the cycle, in the medium- to longer term.”

Sasol has also made several key decisions in areas where the company does not believe it can maintain a leading position or deliver strong returns. Sasol has decided not to invest in further greenfield GTL projects. This decision means the company will no longer pursue its proposed GTL project in the United States. Sasol announced in January 2015 that it was delaying a final investment decision on the project to conserve cash in response to lower oil prices.

“While our current GTL assets are generating good returns and cash flows, the value proposition for Sasol to build new GTL projects is uneconomic against a volatile external environment and structural shift to a low oil price environment,” Cornell says. Sasol will maintain its industry-leading position in Fischer-Tropsch (FT) technology, he says. “We will continue to work on opportunities to optimize and improve our existing facilities in regard to catalyst performance, product yields and energy efficiency. We also see further opportunities to high-grade the value from our GTL molecules through base oils extraction, and we will continue to license and support our FT technology.”

Sasol has also decided not to invest in additional oil refining capacity. “This decision [is based on] the large investments that will be required to meet changing fuel specifications in South Africa and a lack of any clear competitive advantage for Sasol outside our existing position in Secunda, [South Africa],” says Cornell.

Sasol has also “made an important call on commodity chemicals,” says Nqwababa. “While we have a solid foundation business in commodity chemicals and the world-scale LCCP under construction in the US, the risk profile to execute such projects alone, in the future, is larger than what Sasol wishes to undertake. Such investments in feedstock-advantaged locations may still be considered, but we will not entertain wholly owned investments in similar megaprojects, such as the LCCP, going forward.”

Sasol says it will continue to invest in extracting further value from its chemical facilities in the United States and South Africa, and pursue commodity chemical investments where this can support the company’s desire to grow its specialty chemicals portfolio.

By Natasha Alperowicz

Source: Chemical Week

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