Energy and chemicals group Sasol aims to save between R13-billion and R22-billion from “capital portfolio phasing and reductions” over the coming 30 months as part of a larger R30-billion to R50-billion cash-conservation programme launched in response to an expectation of a “lower-for-longer” oil price outlook.

The changes to capital expenditure (capex) formed the single largest component of the JSE-listed group’s so-called Response Plan, which was first signalled to the market on January 28.

CEO David Constable said the 30-month cash-conservation target range of between R30-billion to R50-billion would use December 31, 2014, as the baseline and would be pursued in parallel with the Business Performance Enhancement Programme (BPEP), which had been launched some years back to “fix the roof while the sun was shining”.

Under the programme the organisational structure had been overhauled and 1 500 mostly senior employees had accepted voluntary severance packages.

Ongoing cost savings of at least R4.3-billion a year were being targeted under the BPEP from financial year 2017, using 2013 as the base year, with a further 200 jobs to be shed in the process – the figure had previously been R4-billion.

The group was forecasting capex of R45-billion for 2015, R65-billion in 2016 and R60-billion in 2017. Previously, Sasol was planning to spend R50-billion on capex in 2015, R65-billion in 2016 and well over R70-billion in 2017.

Group financial controller and former acting CFO Paul Victor tells Engineering News Online that the cuts related to both sustaining and growth capex with the recently announced delay to the gas-to-liquids (GTL) investment for Lake Charles, Louisiana, contributing a significant portion of the proposed cuts.

Prior to the fall in the oil price, which Sasol sees recovering to around $80/bl in its 2017 financial year, the group had been planning to invest between $11-billion and $14-billion on a 96 000 bl/d GTL plant in the US.

However, while it was continuing with an $8.9-billion ethane cracker project at the same Lake Charles complex, describing the economics of the project as robust at $70/bl, it had decided to pull back from a final investment decision on the larger, more complex GTL project.

Victor stressed that all of the projects had been evaluated on a case-by-case basis in an effort to “rebalance” the portfolio in line with the dramatically altered oil-price outlook.

Sasol had previously expected to spend about R20-billion a year over the coming three years on sustaining projects, but it was looking to lower that expenditure by between R3-billion and R6-billion.

The “growth projects”, meanwhile, had been reduced by 46% against the previous forecast, with the GTL project to contribute between R10-billion and R12-billion in savings over the 30-month period.

The group was also targeting between R8-billion and R12-billion in cost reductions from capital structuring, with the revised dividend policy, which had transitioned to a dividend-cover range from a progressive policy, expected to deliver a good portion of the savings being targeted.

Sasol would also seek to secure between R4-billion and R7-billion (R1-billion sustainable) in further cash cost reductions, while working capital and margin improvements were expected to yield between R5-billion and R9-billion.

“The global economic environment remains volatile and uncertain. We expect oil prices to remain low for the rest of the 2015 calendar year,” Constable said.

Sasol also expected the rand exchange rate, to which its business was also sensitive, to be impacted by quantitative easing in the Eurozone, uncertainties relating to the interest rate normalisation by key central banks and infrastructure constraints in South Africa.

The group remained highly sensitive to exchange rate movements, with a 10c move in the rand against the dollar over a year affecting earnings by R605-million. A $1/bl change in the oil price, meanwhile, had a R800-million impact.