Sasol’s wager on oil price costs group R1bn
Carli Lourens
Trade and Industry Editor
PETROCHEMICALS group Sasol’s decision last year to hedge synthetic fuel revenues, which are based on the Brent oil price, will cost the group R1bn in lost earnings.
Investment house Merrill Lynch said in a report on Friday that it had reduced its forecast earnings for Sasol by R1 a share for the year to June as a result of oil-hedging losses.
Merrill Lynch’s headline earnings forecast of R13,20 for the year was based on an average oil price of $42,50 a barrel over the period.
Sasol hedged 45000 barrels a day, or 30% of its synthetic fuel production, at the much lower average price of about $33 a barrel last year.
“It’s a big opportunity lost,” said an unnamed analyst.
Sasol spokesman Johann van Rheede said on Friday that the group took out the hedge not to lock in value, but to ensure stability in cash flows, particularly because of high capital expenditure. Sasol’s capital expenditure would peak at about R15bn in its current financial year, up from about R4bn three years ago.
“At the time we took the hedge out, Merrill Lynch’s forecast — and that of most of the investment banks and consultants who study the market — of the oil price average for the financial year was less than the hedged price,” said Van Rheede.
Craig Pheiffer, chief investment strategist at Sasfin Frankel Pollak Securities, said oil prices were extremely volatile, and there was a lot of global tension around the time Sasol made the decision to hedge. To obtain some certainty in earnings against this backdrop was “not such a bad thing”.
“It’s like taking a little bit of insurance,” said Pheiffer.
Sasol would review its hedging strategy before the end of its financial year in June, which is when the current hedge agreements terminate.
Merrill Lynch said oil price fundamentals had changed, and it supported a long-term price of more than $30 a barrel compared with about $20 a barrel in 2001. It expected Sasol to post headline earnings of R6,30 a share for the six months to December.
Sasol will release its results for the interim period on March 7.
The share gained 3% on Friday to close at a record high of R140.
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