Chemicals and energy group Sasol indicated on Tuesday that its second-half results would be positively affected should the recent rise in oil prices to levels approaching $70/bbl be sustained for the remainder of its financial year, which runs to June 30.
In a trading statement for the six months to December 31, the JSE-listed group noted that the average Brent crude oil price had risen by 19% period on period and that, since December 2017, spot prices had moved closer to the $70/bbl mark. If sustained at these levels, the oil price would have a positive effect on its second-half results.
“Similarly, our refining margins increased by 16% to $9.73/bbl. We have also seen a steady increase in most commodity chemical prices. Despite the volatile macro-economic environment, average margins for most of our specialty chemicals products increased over the first six months ended December 31, 2017.”
However, the group also reported that production volumes at the Natref crude refinery, in the Free State, fell by 21% in the interim period to December 31, 2017 – a slump that was attributed to plant shutdowns and an unexpected Eskom electricity supply interruption at the start of the period.
In a statement pointing to a “largely strong set of results” Sasol said the performances had been negatively affected by the less than satisfactory operational performance at Natref, which it operates in joint venture with Total.
The statement is the first released following the unveiling of the group’s new strategy in November, which included plans for a far-reaching asset review, as well as an announcement that the group would no longer pursue refining.
The review, which is still under way, could have implications for the Natref refinery, South Africa’s fourth-largest refinery with a capacity of 108 000 bbl a day.
Sasol’s performance during the six-month period was also negatively affected by the weak South African economic environment, which affected product demand, as well as a far stronger closing rand/US dollar exchange rate, of R12.37 compared with R13.74 at the end of 2016. The results could also be negatively impacted by remeasurement and once-off item charges.
The JSE-listed group indicated that headline earnings a share for the six-months period were expected to increase by between 12% and 17%, or between R1.81 and R2.57 a share compared with the corresponding period in 2017 of R15.12.
However, core headline earnings a share, which adjusted headline earnings for once-off items, period close adjustments and depreciation and amortisation of capital projects, were expected to increase by between 1% and 6%, while earnings per share were expected to decrease by between 20% and 25% from the R14.21/share reported in the prior period.
Sasol's interim financial results will be announced on February 26.