Petrotahlil - Sasol Ltd. is reining in oil expansion and considering job cuts as part of ongoing efforts to turn the business around and protect itself from market downturns.
The overhaul at the South African company follows a 50% slump in its shares this year as oil’s crash strained finances already pummeled by cost overruns at a giant U.S. chemicals project. Now it’ll focus squarely on its core chemicals and synthetic-fuels divisions as it seeks to boost cash and bring down debt.
A “key decision” is the “discontinuation of all oil growth activities in West Africa,” the Johannesburg-based company said Thursday in a statement. That relates to fields in Gabon, where Sasol has an interest in Vaalco Energy Inc.’s operations. It also has a larger exploration and production unit in Mozambique, which isn’t affected.
Sasol is conducting a “robust” review of its business and workforce, and has entered talks with labor unions about possible job cuts, the company said. It needs to bring down debt that ballooned after the cost of the U.S. Lake Charles chemicals plant soared to $13 billion.
The company “signaled that it appears to have the beginnings of a coherent plan for the future, a big step forward,” JPMorgan analyst Alex Comer wrote in a note.
Creditors have waived a June debt covenant and lifted another in December to four times Sasol’s net debt as a ratio of earnings, the company said. That alleviates some pressure to conclude an asset sale and stave off a potential rights offer.
Sasol also reported momentum in its revived crude-oil hedging program, saying about 80% of its synthetic-fuels production has been hedged for the first quarter of 2021 and more is in progress for the rest of the year.
The company will make changes to its executive committee, including the creation of a role to manage the overhaul and “help execute our restructuring initiative and mitigate risks to ongoing operations,” it said.
Sasol must now prove it can implement these measures, and boost its shares. The stock dropped as much as 7.9% on Thursday.
“Plans are one thing, execution is another,” Comer wrote. The company could take a more fiscally and environmentally sustainable path if the plans are successful, and it could also potentially lead to a splitting of the domestic and overseas business, he said.