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Sasol jumps after locking in fuel prices

Shares rose as much as 24%.
Image: Waldo Swiegers/Bloomberg

Sasol started a hedging programme as it looks to tackle plummeting prices and a crash in demand for its oil products and chemicals. The shares surged as much as 24%.

It hedged about 80% of its synthetic fuel production in the fourth quarter at about $32 a barrel, the South African oil and chemicals producer said Tuesday. The company will continue to hedge crude for the next 12 months.

Sasol share price

The move follows credit rating downgrades by Moody’s Investors Service and S&P Global Ratings. The cost of some of Sasol’s floating-rate debt is partly linked “to our credit rating and the revised rating profile will therefore result in an increase in finance costs from existing facilities” by approximately $10 million a year, it said.

The stock gained 19% as of 2:35 p.m. in Johannesburg, after rising to the highest level in 12 days. The company has had a torrid year so far with the shares slumping 88% as earlier cost overruns and delays at its Lake Charles chemical project in the U.S. were made worse by lower oil prices and the Covid-19 pandemic.

Read: Sasol: What happened, and what now?

Sasol is considering the option of a rights issue in order to meet debt obligations. The company plans to continue running its South African operations for the duration of the country’s 21-day virus lockdown. But some plants will be required to reduce throughput, or potentially shut down following lower demand, it said.

It has about $2.5 billion of liquidity.

© 2020 Bloomberg L.P.

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Accountability: Are the past two CEO’s of Sasol going to paid back their bonusses for their negligence in not hedging Sasol’s exposure to the oil price?

Is the current CEO going to be fired for his negligence in not hedging? He claims it was not foreseeable – but it was, not long ago the oil price also imploded.

Name the Board who was negligent in their oversight of Sasol? Pensioners and investors lost billions.

That is why I called them ”delinquent” directors” – Allan Gray, Coronation, Old Mutual – the whole bunch should be declared delinquent for buying and keeping Sasol shares in their positions, well knowing that Sasol has got a ”benign and neglect” policy in place with regards to hedging their risks – to the detriment of their policyholders and pensioners!

In more than 40 years of my dealing in the financial markets, the dealers/ fund managers that scared me the most were those that just finished varsity and were appointed in senior positions without any ”experience” and a plethora of attitude! – let’s see if Moneyweb will post this!

Some insight at the big green investment house the analyst used to be flown to lake charles and be flow to big investor conferences as the Sasol analyst. Often the report backs contained words like “best in class assets”, ” superior returns on capital”and “excellent management”. The person had been covering financial stocks for a decade and was hopelessly out of her depth. That house was and is a shareholder in sasol..with said person in a senior position. I shudder at the clients invested in that investors fund

You are a bit harsh with your critic on the mentioned funds , various ‘experts” on the TV program Stock Watch also punt it the month before the price imploded , nobody saw this coming. These commentators are also regularly saying that you should diversify your portfolio as well as “do not put all your eggs in one basket”. I am also an investor who lost a lot of money but know that over time I will recover the loss.

One can make a lot money by telling the executive exactly when, and at what price to hedge, using hindsight.

Sure, but the decision by the executive to do nothing at all to protect the single biggest risk in Sasol’s business, i.e the oil price, is bordering on gross negligence.

How does that help if the break-even point for Sasol’s synthetic fuel business is between USD35 and USD40 per barrel? Or are they limiting losses by locking in at USD32 a barrel at this late stage?

According to the link below,
it costs Sasol about R4-6 to make a liter of petrol,
At the price of $32 per barrel, they are still making a profit.

https://thesai.co.za/sol.html

As per the below link,
It costs Sasol R4-6 to make a liter of fuel.
if correct,
It means that even at $32 per barrel they are making a tidy profit.
https://thesai.co.za/sol.html

Given their recent track record the oil price will probably rebound above $32bbl in the next few weeks!

13h00 Friday 3 April – Brent futures at $32.23.

That didn’t take long!

Morning,

Could someone please explain to me what it means when saying that Sasol hedged its production at $32/barrl?

Does this mean they were able to lock in on oil futures based at $32/barrel?

There are different types of ”oil” hedging instruments around…if they bought derivatives – they can lock in at 432 per barrel (almost like a stop loss if the price collapses).

Should the Oil price rise, they can just walk away from the hedge (their hedging ”insurance” is paid. They got the right to lock in if the price falls but not the obligation to sell should the price goes highr..this example is for a straight forward ”vanilla derivative” – which is what they should have done as the oil price came down over months/years…

Hedging was only done now after Sasol suffered huge losses in the last 18 months based on his advise. Accountability does not lie with CEO’s only, why is the CFO surviving yet again. He is advising and signing off on financial decisions and projects. Hedging should have been done last year already, nobody will give you hedging for more than US30 on crude in the current economy, even December it was available for more than US50. Stakeholders are loosing serious money

Zero chance this isn’t above 100 rand in 2 years.

Triple your money not bad. Saudis so indebted as a nation they can’t afford $20 oil. Us shale in terrible spot. Russia the big winner with all their gold reserves, forex and low breakeven.

End of comments.

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