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Sasol revises cost of Louisiana project upwards to up to $11bn

The Lake Charles complex

The Lake Charles complex

Photo by Sasol

6th June 2016

By: Terence Creamer

Creamer Media Editor

  

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South African energy and chemicals group Sasol reported on Monday that the capital cost of its Lake Charles Chemicals Project (LCCP), in Louisiana, had been revised upwards and that, following a review of the US investment programme, the project schedule had also been extended.

A “preliminary finding” from the review, which is ongoing, indicates that the total capital expenditure (capex) associated with the project could rise to $11-billion, from $8.9-billion previously.

In addition, the ethane cracker portion of the project is expected to achieve beneficial operation in the second half of 2018, with 80% of the total LCCP expected to enter beneficial operation in 2018 and early 2019. The remaining volumes from the derivative units are expected to achieve beneficial operation by the second half of 2019.

Besides the 1.5-million-ton-a-year ethane cracker, the project includes six downstream chemical projects. Two large polymers plants (low-density and linear low-density polyethylene) and an ethylene oxide/ethylene glycol plant will consume around two-thirds of the ethylene produced, while three smaller, higher-value derivative plants will consume the balance to produce speciality alcohols, ethoxylates and other products.

The expected project returns had also been reduced as a result of “changes in long-term price assumptions and the higher capital estimates, and are now expected to be around Sasol's weighted average cost of capital, compared to returns approximating hurdle rate at the time of Final Investment Decision in October 2014”.

Sasol did not expect the capex changes to result in it breaching its self-imposed gearing targets and the funding strategy remained intact.

The JSE-listed company also stressed that there were no “material or unexpected” scope changes, with overall construction continuing on all fronts and most engineering activities nearing completion. As of April 30, the capex on LCCP stood at $4.5-billion and the overall project completion has progressed beyond 40%.

The LCCP review was initiated in March 2016 in light of Sasol’s ‘Response Plan’ to the low oil price.

“While the detailed review is still in progress, current indications are that the estimated capital expenditure increase is mostly due to construction delays caused by higher-than-expected rainfall, higher labour costs, certain of the lump-sum bid contract prices being higher than originally estimated, as well as quantities of bulk materials being in excess of those included in the original estimate,” Sasol said in a statement.

The detailed LCCP review should be completed during the third quarter of 2016, with further details to be communicated when Sasol released its results on September 12.

R11.5BN GAS IMPAIRMENT

Separately, Sasol announced that its headline earnings a share for the financial year ending June 30 would fall by between 10% and 30% (between R4.98 and R14.93 a share) when compared with the R49.76 in the 2015 financial year.

“The volatile macroeconomic environment, in particular lower crude oil prices, has had a significant impact on earnings,” the company said, adding that the results had been further impacted by the R7.4-billion impairment of its share in the Montney shale gas asset recognised in December 2015.

“Due to a further decline of natural gas prices in North America, we will recognise an additional impairment of approximately R4.1-billion, resulting in a total impairment of R11.5-billion."

Edited by Creamer Media Reporter

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