A "modest" increase seen for crude oil price

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Pat Davies, CEO, Sasol

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A "modest" increase seen for crude oil price
David McKay and Marc Ashton
Posted: Mon, 08 Sep 2008

[miningmx.com] -- SASOL, the South African petrochemical giant, forecast a �modest� increase in the average oil price to $100/barrel for the current financial year and said the market would remain volatile.

�Look, firstly, we know our predictions will be wrong,� said Sasol CEO, Pat Davies, in an inteview. �But the price [of oil] would be fundamentally driven by supply and demand factors and then exacerbated by political risk.�

Sasol on Monday reported headline share earnings of R38.09 in the year to June representing a 50% year-on-year increase. Operating profit was a third higher at R34bn which Sasol said was largely owing to higher crude oil prices. Average dated Brent was $95.51/barrel in the 2008 financial year compared to $63.95/barrel in 2007.

exacerbated by political risk

�We don�t believe in the speculation that financial markets have had an effect on the oil price,� he said of reports that traders had been exploiting the oil supply deficit.

Commenting on the industry�s cost profile, Davies said marginal producers would produce oil at about $80 per barrel. Exogenous factors, such as �hurricanes in the Gulf� would then take marginal costs of production higher.

Sasol reported opportunity losses of R2.3bn after it installed a hedge to protect it should the oil price fall below $76.75 per barrel. The oil price was as high as $150/barrel in the calendar year.

Davies said the rand/dollar exchange rate would be �marginally weaker�.

Cash flush

Sasol generated R34.7bn in cash in the year ended-June but Davies suggested the company would seek to conserve liquidity where possible.

�We have projects, of course, but the financial crisis has changed things,� he said. �It�s useful to be sitting on a pile of cash and we believe shareholders will support this.�

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Liquidity in some of the world�s developed economies has tightened, a development partly triggered by a crisis in the solvency of mortgage providers in the low-end part of the market. The consequence is that it�s less attractive to borrow money from banks.

Sasol had no plans for a special dividend with earnings �generously� distributed by the 58% increase in the final dividend, said chief financial officer, Christine Ramon.

�Including the interim and final dividend, there was a total increase of 44% which we think is generous,� she said.

Sasol also completed its R25.9bn Inzalo empowerment transaction in which shares were distributed to historically disadvantaged South Africans.

However, Sasol said it intended to continue with its share buy-back programme. The group had bought just under 6% of shares in issue and would apply to continue buy-backs in the current financial year as its annual general meeting in November, Davies said.

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