• The energy and chemical company has unveiled an organisational overhaul.  
  • Unions have been served with consultation letters over possible impact on jobs.
  • The group has been under pressure from the combined effects of weaker oil prices and the global impact of Covid-19.

Battered by the impact of volatile oil prices and high debt, Sasol on Thursday unveiled an overhaul of its business which will see the company take a step back from oil investment to focus on chemicals and energy, a process that may lead to job cuts.

Sasol said it was positioning the business for “sustained profitability in a low oil price environment” and improved cash generation.

The energy and chemical company has been under pressure from the combined effects of low global oil prices and the global impact of Covid-19, which caused its share price to plunge and wiped out a significant portion of its market value. Its market capitalisation is currently R84.4 billion.

Sasol 2.0 would focus on its core portfolio of chemicals and energy businesses, it said in a statement. A planned review process could impact jobs, with unions already invited for consultations. It will also discontinue all oil activities in West Africa.

“The redesign of the organisation to enable our sustainability at lower oil prices will have an impact on our workforce structure,” it added.

The petrochemicals firm said its chemicals business would focus on activities in specialty chemicals, where it had differentiated capabilities and a strong market positions which could be expanded over time. The energy portfolio will include its southern African value chain and associated assets.

Not surprising

The repositioning of Sasol was not surprising, said Barry Dumas, a trading specialist at the Purple Group, adding it showed the company was adapting its business to a changing environment.

“By consolidating its business, it might address its expenditure for the time being, creditors have also given Sasol some breathing room for June and its crude oil-hedging strategy seem to be on track,” said Dumas.

As the impact of the coronavirus hit oil prices, Sasol announced in March it had hedged about 80% of its synthetic fuel production in the fourth quarter at about $32 a barrel. Oil hedges are in place for the rest of the 2021 financial year in a bid to protect liquidity.

Michael Treherne, the portfolio manager at Vestact, said the restructure was necessary given Sasol’s “near-death’ experience”.

“It makes sense that a new strategy has been implemented. It seems like they are repositioning for a future where humanity is less reliant on the oil industry,” he added.

The company has a debt burden of about $10 billion, and has been seeking a partner for it US Lake Charles Chemical projects, which has faced repeated cost overruns. There have also been talks of selling assets and a potential rights issue of up to $2 billion to boost liquidity.

“Any divestment or similar activity will be executed in line with balance sheet, shareholder value and strategic objectives, including the potential for partnering options at Sasol’s US Base Chemicals business,” said Sasol.

A decline in domestic fuel demand due to the lockdown saw the group temporarily suspend production at its inland crude oil refinery, Natref, in April.

However, the company now said production was expected to resume by the end June and the facility would ramp up to full capacity as demand for jet fuel increases.