Sasol business update

On Friday we received a business update from Sasol for the 9 month period up to April. One thing I can confirm from this very long report is that this is a very busy business. They have so many things going on at the moment it is hard to keep up. Here +is the release if you want to read the details. Below I will cover the points I thought were important.


In terms of financials there was not too much info given away. We will have to dig into that when the results come out. They do however give the average Rand Dollar price and average oil price received. Compared to March last year this is actually down 2%. The weaker rand has been offset by a weaker oil price.


There is also a lot of talk on macro influences in the update. Nothing new was said but there are many mentions of the unproductive and weak labour market we have in South Africa at the moment. This is causing above inflation cost increases to the business in South Africa which they are trying very hard to control. No wonder they have earmarked North America for their next big growth investment. Talking about their US investments they tell us some detailed information about their plans there.

"We are executing the front-end engineering and design (FEED) phase of the integrated, world-scale ethane cracker and downstream derivatives units, and will commence with FEED for the GTL and chemicals value-adds facility at Lake Charles in Louisiana during the second half of the 2013 calendar year."


So basically they are going to begin with an ethane cracker which produces ethylene. This will be used for many industrial functions and products. Only after that is decided on will they look at the GTL plant.


"The US GTL facility (estimated to cost between US$11 billion and US$14 billion) will produce at least a nominal 96 000 barrels per day (bbl/d) of product, with the potential to produce up to 10% more. The US GTL project will be delivered in two phases after the ethane cracker, with each phase comprising at least 48 000 bbl/d. The final investment decision for the US GTL project is expected to be taken within 18 to 24 months after that of the US ethane cracker.


Around 70% of the production of the GTL facility will be low-sulphur diesel, with naphtha and liquid petroleum gas (LPG) as co-products, and 30% of the production will be chemical products, including paraffin feedstock for linear alkyl benzene (LAB), wax products and synthetic base oils."

Very interesting. The GTL plans will only look to start producing around 2020 so patience will be key. The concept sounds amazing, implementation is vital and that is up to good management. As an investor you are entrusting management to do this right.


As far as current operations are concerned.


"We expect an overall solid production performance for the 2013 financial year with our production guidance remaining
unchanged:


Sasol Synfuels volume guidance based on current performance is anticipated to be at the top end of the previously guided range of 7,2 to 7,4 million tons for the full year;


The full year average utilisation rate at ORYX GTL in Qatar, taking into account the statutory shutdown, is expected to be approximately 80% of nameplate capacity;


Full year production at ASPC in Iran will be approximately 80% of nameplate capacity; and

Our shale gas venture in Canada will continue to show increased production compared to the prior year due to the new wells coming on stream. At present we are stabilising our production, as we have slowed down the drilling of additional wells.


We remain on track to deliver on our expectations for improved operational performance."


We remain happy and confident to hold this stock for a very long time. Management are proactive and ambitious while using their strong base here in SA to expand around the world. On top of that we are bullish about the future demand for energy, that is of course key for the future of this business.