Posted: 2005-09-12 23:56 Sasol earnings up 87%  Presenter: Giulietta Talevi Guest(s): Pat Davies Oil and chemicals group Sasol releases results ahead of market expectations - revenue rises to R69.2-billion, operating profit is up 56% to R14.5-billion, and headline earnings soared 87% to R17.49 a share. With Sasol chief executive Pat Davies GIULIETTA TALEVI: If we could start with the fairly contentious issue - the company has enjoyed an absolutely bumper year, will South Africans see the benefit of these profits, especially given the DA recently calling for a super tax on Sasol as a result of record high oil prices? PAT DAVIES: Certainly we’ve had a particularly good year, and a lot of that has been due to oil prices - but if I can just point out that oil prices in fact have both a positive effect on the energy side of our business, but also a negative effect in that the feedstock costs to our chemical businesses go up. So the net effect of that has been about a R2.5-billion increase as a result of the oil price, and then the currency effect - of course as you know the currency has been somewhat stronger - has reduced that R2.5-billion down to about R900-million net effect overall between oil and currency. So it’s not as if there’s been an enormous surge in Sasol’s profits as a result of oil prices, and currency effects. We don’t agree obviously with the DA’s proposal of putting a super tax onto Sasol - we think this would be bad for the country. It would send the wrong signals to investors. I think that Sasol’s profits, and I may point out that our profits have declined over the last two years - and this is the first time they’ve increased - should be seen in the light of the massive contribution that we make to the economy of this country. We save some R30-billion per year in foreign exchange for example, we contribute some R40-billion to the GDP - so the benefits of Sasol doing well clearly roll through to the economy. Without us being here even more crude oil would have to be imported - making the input costs to the country even higher. GIULIETTA TALEVI: Getting back to that oil price - we’ve seen it spike up recently to $70 a barrel - can you tell us what the average price you achieved over the period was, and where you see that price going for example in the next year? PAT DAVIES: The average price we achieved is $44.40 a barrel for the year. We believe it’s very high at the moment, and things such as Hurricane Katrina and other impacts have made it even higher than it normally would have been - so we expect it will stay fairly high in the next couple of months. But then, say, in a twelve-month period out it would be between $45 and $50 is our best guess, but it’s very difficult to estimate. GIULIETTA TALEVI: You’ve got a much more conservative estimate when it comes to planning for future investments - you’re talking about oil being at $30 a barrel - can you explain why there’s such a big difference as far as the investment outlook is concerned? PAT DAVIES: Yes. This is really just to be conservative - obviously oil prices have fluctuated quite a lot over the last 50 years, and when they’re high everyone believes they’ll stay high, when they’re low everyone believes they’ll stay low - so while we’re all pretty bullish that oil prices are going to stay reasonably high, not at the current $60 level, they’ll come off that. But for investment purposes - where one is investing large amounts of money into projects that need to run for 20 or 25 years - then one needs to be more conservative, and ensure that they’re profitable even at lower prices. That’s why we take a conservative $30 a barrel view at this point in time. GIULIETTA TALEVI: At what price did you hedge a part of your oil production? PAT DAVIES: Our oil production coming out of Synfuels is hedged - 30% of that, about 45,000 barrels a day - and we have a zero cost collar mechanism that we’ve introduced for the next year. That means below $45 we are protected - so we will get paid $45 for that amount of production should the oil price go lower, and then no impact up to $82.61 - but beyond $82.61 we give away the upside to the counter party. We believe this is an effective hedge, and it costs us no money - it’s not done for speculative purposes, it’s merely to secure a proportion of cash flow coming out of Synfuels to help us fund this massive capital program that we have going forward. GIULIETTA TALEVI: Speaking of Synfuels - perhaps you can detail some of the gas-to-liquids (GTL) and the coal-to-liquids (CTL) projects that Sasol has got on the boil at the moment? PAT DAVIES: Absolutely. The most exciting part of our growth portfolio is GTL - and I’ll start with that one. We really believe a new industry has been formed now because large reserves of natural gas are available in the world - ready to be monetised and converted into very environmentally friendly diesels - so we believe a global business is developing there. The first project of Sasol is in partnership with Qatar Petroleum in Qatar - will be starting up early 2006. That is 34,000 barrels a day, and we hope reasonably soon after that to expand its capacity to 100,000 barrels a day. To give you a comparison Secunda is about 160,000 barrels a day - so it’s a sizeable plant in Qatar. GIULIETTA TALEVI: What about Iran and China - China is the CTL project, whereas Iran is GTL? PAT DAVIES: Correct. Let’s start with CTL - we are doing commercial feasibility studies in China for two projects there based on converting coal to gas, and then the gas to liquid fuels. Those are two times 70,000 to 80,000 barrels a day projects. At the end of the year we’ll be able to make further decisions on those - but it looks very exciting, the Chinese are extremely keen to go ahead with this. As far as Iran is concerned - we’re constructing a polymers facility there at the moment that will come on stream during the course of 2006. That’s about a $1-billion investment that we have there, and we’ve also been in talks with the Iranians to do a GTL project in Iran as well. GIULIETTA TALEVI: So you’re not worried about the change in the government in Iran? PAT DAVIES: The signals from the new regime in Iran seem to be fairly comforting - they’re making the same noises about attracting positive foreign investment into their country - so no, we’re not unduly concerned. We’ll keep a careful eye on the situation, but obviously we’re comfortable with that environment otherwise we would not be investing to the extent that we have. GIULIETTA TALEVI: In the sale of your Condea operations you’ve had expressions of interest from 20 parties - could you comment on whether you expect to see it sold off by the end of this year, or the end of next year - and what price you might achieve for those Condea operations? PAT DAVIES: We’re delighted with the amount of interest that we’ve received - and some of them are very serious players - but this is a complicated process because it’s a large business. We’ll see when we go into the due diligence process at the beginning of the next calendar year - and hopefully finalise the deal by June 2006. As far as price is concerned it’s a little early to say. We obviously are going to sell it at fair value - if we can’t get fair value then we won’t be selling it. Comments Related to this transcript: Comment on this transcript... Name : Email : Comments :