International investment research firm Zacks states that, given petrochemicals group Sasol’s strong balance sheet and net cash positive status, the company will be able to pursue an aggressive coal-to-liquids and gas-to-liquids (GTL) growth programme.
This is in agreement with Sasol CFO Christine Ramon’s statement during the group’s 2011 full-year results presentation in September that Sasol’s strong balance sheet would position the company well to fund its growth opportunities.
In the financial year ended June 30, the group posted earnings attributable to shareholders of R19.8-billion, a 24.5% increase on its earnings of R15.9-billion the year before.
Further, it reported a low balance sheet gearing of 1.3% for the 2011 financial year, compared with 1% in the 2010 financial year, owing to improved cash flow generation.
The group generated R38.6-billion in cash from its operations, a 41% increase on the R27.3-billion generated in 2010.
Sasol expects to maintain this low gear- ing in the short term, but says its gearing will return to within the group’s targeted range of between 20% and 40% in the medium term, as its large capital-intensive growth programme and gas acquisition strategy gain momentum.
The group plans to grow its synthetic fuel output to between 7.2-million tons and 7.3-million tons a year in 2012.
Sasol already produces synthetic fuels (synfuels) at its joint venture Oryx GTL plant, in Qatar, but plans to continue expanding its GTL operations.
In line with this, the group signed an investment agreement with oil and gas companies Uzbekneftegaz and Petronas, on September 19, to open the way for the front-end engineering and design feed of a 1.4-million-ton-a-year GTL project in Uzbekistan.
The deal offers the GTL project investment protection and fiscal benefits.
It was signed by Uzbekistan’s Foreign Economic Relations, Investment and Trade Minister, following a meeting between President Islam Karimov and Sasol CEO David Constable.
The feed phase of the GTL project is expected to start before the end of this year.
Should an investment decision be made, the plant could be operational in the second half of the decade and would harness Uzbekistan’s abundant natural gas resources to produce transport fuels that the country currently imported.
Uzbekneftegaz, which has a 44.5% interest in the project, would supply gas from the already developed Shurtan group of gasfields and has also signed an offtake agreement for the bulk of the production. Sasol also holds a 44.5% interest, while Petronas has an 11% interest.
Petronas president Dato’ Shamsul Azhar Abbas expressed the Malaysian group’s support for the partnership.
The signing followed on Sasol’s announcement that it was moving ahead with a feasibility study for a 48 000 bl/d to 96 000 bl/d GTL facility in the US state of Louisiana.
The feasibility study, which was announced jointly by Louisiana Governor Bobby Jindal and Sasol new business development MD Ernst Oberholster, will take 18 months to complete and will evaluate the viability of a GTL venture in Calcasieu Parish, Louisiana.
Should it proceed, Sasol would apply its GTL technology to convert Louisiana’s abundant natural gas resources into fuel to be consumed in the US, which is keen to reduce its dependence on foreign oil.
Meanwhile, Sasol continues to make progress on a GTL project in Canada.
It is advancing a feasibility study for the GTL facility, which could be built in either Alberta or British Columbia, in western Canada, following its recent R14.2-billion acquisition of 50% of Talisman Energy’s Farrel Creek, as well as half of Talisman’s Cypress A shale gas assets, in the Montney basin, of British Columbia.
The South African company has pro- duced more than 1.6-billion barrels of liquid fuels and chemicals, primarily from coal, over the past 60 years, but is focusing on producing more synfuels from gas.
Sasol agrees that climate change presents a risk to the world at large, to South Africa and to the local and international business community, and reports that it is committed to engaging with the South African government in its development of a national policy to mitigate climate change.
The national policy is aimed at ensuring a coordinated, coherent, efficient and effective response to this challenge, without prejudicing the country’s growth and development goals and the competitiveness of key industries within the South African economy.
The group states that it is a significant contributor to the South African economy and that it plays a key role in ensuring energy security for the country; however, Sasol also recognises that it is a large emitter of greenhouse gases (GHGs) and has made changes to its business operating methods to move to a lower carbon economy.
Through investments in energy effi- ciency and in finding and using natural gas from Mozambique, Sasol reduced its yearly GHG emission levels by ten-million tons between 2004 and 2011, which is a reduction of 12%.
Meanwhile, Sasol New Energy has undertaken studies related to various clean energy and low carbon electricity initiatives, including the generation of electricity from natural gas in both South Africa and Mozambique, as well as the establishment of concentrating solar power facilities to produce electricity in South Africa.
Sasol New Energy obtained approval from the Sasol board to construct a 140 MW electricity generation plant in Sasolburg, South Africa. The plant will use natural gas as its feedstock.
In July 2010, the company also concluded an agreement with Gassnova, a Norwegian State-owned enterprise, to enable Sasol to participate in the European CO2 Technology Centre, in Norway. Construction is progressing and the facility is scheduled for start-up in the latter half of 2012.
Competition Law Compliance
Meanwhile, Sasol reports that it continues to evaluate and enhance its compliance programmes and controls, in general, and its competition law compliance programmes and controls, in particular.
As a consequence of these compliance programmes and controls, including monitoring and review activities, the company has also adopted appropriate remedial and mitigating steps, where necessary or advisable, lodged leniency applications and made disclosures on material findings as and when appropriate.
It notes that these compliance activities have already revealed competition law contraventions or potential contraventions in respect of which, the company reports, it has taken or will take appropriate remedial or mitigating steps, including lodging leniency applications.
Sasol initiated a global competition law compliance drive in 2008 after it was fined R3.7-billion by the European antitrust watchdog for anticompetitive behaviour by Sasol Wax in the European paraffin wax industry.
Sasol’s penalties for breaching competition laws since 2008 amounted to R4.06-billion, by March 2011, not including possible fines arising from unfinished competition probes.
Increased investigations of competi- tion breaches by the South African authorities followed, leading to Sasol’s decision to cooperate with the authorities under their policy of corporate leniency.
It has since paid R250-million to conclude charges involving Sasol Nitro and R112-million regarding breaches by Sasol Polymers, which Sasol says are technical in nature.
South Africa’s Competition Commission is conducting investigations into the South African piped gas, coal mining, petroleum, fertilisers and polymers indus- tries. Sasol reports that it continues to interact and cooperate with the commission, as well as in the areas that are subject to the commission’s investigations.