JSE-listed petrochemicals giant Sasol says its oil hedge restructuring is progressing well.
The company says it has made significant progress in deleveraging its balance sheet following a strong operating performance in a more supportive macroeconomic environment, continuing cash conservation measures and ongoing asset divestments.
One of the company’s main objectives is to reduce absolute debt levels, which will trigger the consideration to resume dividend payments. Debt metrics are currently following a positive trajectory but may still be negatively impacted by oil price volatility, Sasol explains.
The group’s current hedging programme consists mainly of put options and provides protection against oil prices decreasing to below $43.11/bl.
Following a recent material rise in the oil price, Sasol has been able to restructure and enhance its financial year 2022 hedging programme, ensuring cash flow robustness and protection against future oil price volatility.
The existing oil put hedges of 24-million barrels for the 2022 financial year have been restructured and replaced with a zero-cost collar hedging structure. This has allowed the company to increase the gross average floor oil price on the existing 24-million barrels from $43.11/bl to $60.09/bl, albeit with a cap of about $71.97/bl.
The premium paid on the original put options for the 2022 financial year will be realised as an expense of between $30-million and $34-million, reflecting the cancelled options and new hedges which were executed in terms of the updated hedging strategy.
The oil hedge cover ratio for the 2022 financial year has also been increased by hedging an additional 18-million barrels, or an incremental 4.5-million barrels per quarter.
This was achieved by increasing the hedge cover ratio from 80% to 90% of total Synfuels synthetic crude oil production, and including 90% of Sasol’s share of Oryx production and equivalent commodity chemicals volumes where there is a strong correlation to oil price.
The company adds that the incremental 4.5-million barrels for quarter one to three of the 2022 financial year have been executed using swaps at an average strike level of $67.52/bl; $67.03/bl and $67.21/bl, respectively.
Completion of the last 4.5-million barrels for quarter four is still in progress.
The actual realised chemical margins for the base chemical sales volumes for the 2022 financial year will be unaffected by this hedging programme.
The updated hedging levels underpin the strengthening of the balance sheet and the reduction of the company’s absolute debt levels.
Sasol concludes that the restructuring was focused on the 2022 financial year only. The company will, however, continue to update the market on any changes to its financial risk management positions in its quarterly market disclosures.