Operational Reviews

 

Mining is responsible for securing the coal feedstock for the Southern African integrated value chain, mainly for gasification but also to generate electricity and steam. By doing this we convert low-cost coal into higher-value products.

 

SALIENT FEATURES

Regrettably our safety performance deteriorated, with two tragic fatalities during the period 
Experienced a prolonged strike, leading to lower production volumes, reduced profitability and additional costs of R1,4 billion 
Increased external purchases of coal to replenish our stockpiles to pre-strike levels to ensure uninterrupted supply to the integrated Sasol value chain 
Lower export sales as some export coal was diverted to Secunda Synfuels 
Worked to rebuild relationships with our people through team building and targeted engagements to enable a return to stable operations 
Geological challenges at new Impumelelo mine resulted in lower-than-expected production 
82 new homeowners registered in eMbalenhle as part of our home ownership initiative 
Reported 19% increase in normalised unit cost of production due to slower-than-anticipated production ramp- up post the strike and higher costs to increase production 

Performance summary

Our Secunda mining operations experienced a challenging year with the onset of protected strike action, which commenced in August 2016, by the Association of Mineworkers and Construction Union (AMCU). Notwithstanding a 11% decrease in mining production volumes resulting from the strike action and lower-than-expected production ramp-up post strike action we continued to deliver our full coal supply commitment to the integrated Sasol value chain through external coal purchases. The profitability of the mining business was significantly impacted by the R1,4 billion net additional cost as a result of the strike and external purchases to ensure continuous supply to Secunda Synfuels. We worked hard to reintegrate teams after the strike and extended our community upliftment efforts, focusing particularly on greater home ownership among employees. Regrettably, we reported two work-related fatalities in the year, those of Mr Johannes Mpho Mashili on 4 July 2016 and Mr Themba Mahlangu on 2 April 2017. Safety remains a top priority.


STRATEGIC OBJECTIVES FOR WHICH WE ARE ACCOUNTABLE

  • Continuously improve existing asset base and maintain technological lead
  • Drive world-class safe operations to support growth


Looking ahead

In the year ahead, we expect the Shondoni colliery to be completed and to further advance the second phase of the Impumelelo mine. In 2018, we will have renewed focus on our business improvement programme to improve productivity and cost efficiency. We continue to track developments in the regulatory arena, particularly regarding the Mining Charter and the Mineral and Petroleum Resources Development Act Amendment Bill.

Strengthening our relationships with recognised trade unions, as well as with government officials and our neighbouring communities, remains key. Extending our home ownership scheme for eligible employees is another focus area.

 

Exploration and Production International (E&PI) develops and manages the Group’s upstream interests in oil and gas exploration and production in Mozambique, Canada, Gabon, South Africa and Australia.

 

SALIENT FEATURES

Reported a R2,4 billion turnaround in profitability (excluding the R9,9 billion Canadian impairment in the prior year), through decisive management interventions across all assets and favourable macro-economics 
Contributed more than R16 billion to Sasol’s cash-conservation programme  
Advanced our proactive, behaviour-based safety approach 
Drilled first six wells in PSA licence area in Mozambique and signed a 30% farm-down term sheet with ENH 
Increased Mozambique PPA gas production by 2% on plant debottlenecking and Loopline 2 completion 
Gabon Etame Marine Permit exceeded 100 million barrels from inception to date 
Completed 10 wells in the Canadian shale gas assets, lifting gas production by 6% 
Spent R72 million on social investment in Mozambique, including launch of youth development programme 
Awarded Best Corporate Taxpayer by Mozambique’s Tax Authority 

Performance summary

We made a significant turnaround in our operating profit through decisive management interventions across all assets and we benefited from more favourable macro-economics with translation differences accounting for R1 billion of the turnaround.

In Mozambique, we remain committed to our growth plans, despite the fiscal challenges the country is facing. By drilling the first six wells in the Production Sharing Agreement (PSA) licence area within our approved budget and schedule, we advanced our project to develop an integrated oil, liquefied petroleum gas and gas project in the area adjacent to our Petroleum Production Agreement (PPA) facilities. In line with our strategy of joint value creation for the Government of Mozambique and Sasol, we signed a term sheet to farm down 30% of Sasol’s rights and interests in the PSA to Empresa Nacional de Hidrocarbonetos (ENH). We also completed a project to debottleneck the PPA’s Central Processing Facility. This, along with the completion of Loopline 2 on the Mozambique-to-South Africa pipeline, supported an 8% increase in gas production capacity and an increase of 2% in production volumes for the year. In terms of Mozambique exploration, we drilled an exploration well in Area A, but did not find any hydrocarbons. We also progressed negotiations with the government on the terms of two new exploration licences in Mozambique.

In Gabon, we focused on maximising the efficiency of the Etame Marin Permit (EMP) asset while reducing cost. We also reversed the remaining portion of the impairment previously booked. Amid continued low gas prices, we did not have any active drilling rigs in Canada, but we successfully completed 10 existing wells that resulted in a 6% increase in gas production.

In line with our strategy, we have commenced with the exit from the Beetaloo licence in Australia.


STRATEGIC OBJECTIVES FOR WHICH WE ARE ACCOUNTABLE

  • Secure and develop gas feedstock in Southern Africa
  • Grow economically attractive upstream portfolio


Looking ahead

Focused on creating a portfolio of producing and exploration oil and gas assets for near-term cash generation and long-term value, we are targeting growth opportunities in Southern and West Africa, while adhering to operational and safety standards in our current assets. Cash containment remains a priority in all of our assets, and we will work closely with our partners in Mozambique to mitigate the impact of fiscal challenges. We expect to drill seven more wells in the PSA licence area in the near term, and finalise the terms of two new exploration licences. In Gabon, we will focus on progressing the Etame Marin Permit, the DE 8 Permit acquisition and other opportunities. In Canada, the priority is to continue the appraisal of our assets and re-start drilling activities on a limited basis. In South Africa, we continue to interpret the results of a 3D seismic survey in block ER236, offshore Durban basin.

 

Operations consists of our core petroleum and chemical product manufacturing assets. In Southern Africa, these are Secunda Synfuels, Secunda Chemicals, Sasolburg, Satellite and Natref Operations. Internationally, they include facilities in the United States, Europe and Asia. The value proposition of these regional operating hubs lies in our ability to integrate and operate complex technologies at scale, with world-class product quality and cost advantages.

 

SALIENT FEATURES

Improved overall safety performance across our operations 
Increased production volumes, led by record output at Secunda Synfuels, benefits of Secunda C3 expansion, start-up of second phase of Sasolburg wax expansion and record production at some US and German sites 
Project to reduce emissions of volatile organic compounds (VOCs) in Secunda will reach beneficial operation in the second half of calendar 2017 and cost and schedule to be managed 
Advanced operational and business readiness work in North America ahead of start-up of the LCCP 
Increased community engagement and social investment in Southern Africa and the US 
Commenced emissions offset programme, focused on reducing the burning of waste and domestic solid fuels in South African fenceline communities to improve ambient air quality 
Responded to South African water restrictions with Sasolburg achieving a 29% potable water saving that will
be sustained into the future 
Progressed efforts to improve gender diversity at operations, stepped up training 
Exceeded our utility Energy Intensity Index (EII) improvement target 1% for the year achieving 1,67% improvement for our South African operations 

Performance summary

Focused on ensuring safe, stable, reliable and efficient facilities, we continued work to optimise our global operations, recording a 1% and 6% increase in production volumes for Secunda Synfuels Operations and Eurasian Operations respectively. We improved the performance of many of our assets, including Secunda’s selective catalytic cracker following modifications, the chemicals operations in the US and Europe, and at Natref, where we replaced the fluidised catalytic cracker (FCC) cyclones and carried out a maintenance shutdown of the FCC and alkylation unit, significantly reducing the crude refinery’s FCC catalyst use.

We progressed a number of capital projects in South Africa to meet our environmental compliance targets. The VOC abatement project will reach beneficial operation in the second half of calendar 2017. In the US, we made progress in our work to prepare commercially and operationally for the start-up of the LCCP. In Germany we started up the main units of the Disperal® project in Brunsbüttel. In Southern Africa, we stepped up engagement with all stakeholders, and continued our extensive support of social value within communities near our operations, including through support to municipalities to implement sound business processes and the handover of two state-of-the-art clinics in eMbalenhle and Sasolburg.


STRATEGIC OBJECTIVES FOR WHICH WE ARE ACCOUNTABLE

  • Continuously improve existing asset base and maintain technological lead
  • Drive world-class safe operations to support growth


Looking ahead

We are working towards solutions to meet air quality new plant standards in South Africa that take effect in 2020. At Secunda, we plan to complete the first phase of our sixth fine ash dam, commission the 17th air separation unit, realise further volume benefits of the C3 (polypropylene) expansion and make inroads in insulating low-cost houses for our air emissions offsets programme. At Sasolburg, we are continuing with our offset programme to avoid community waste-burning by establishing a waste-recycling programme and improving management of non-recyclable domestic waste. We also continue to ramp up wax production. Natref has two major shutdowns in the next financial year that will impact on production volumes, and estimates to spend up to R800 million on ensuring compliance with air quality regulations up to 2021. In the US, our HDPE joint venture is due to reach beneficial operation in the second half of calendar 2017. The first units of the LCCP are on track to start up in the second half of calendar 2018. The new spraydryer in Brunsbüttel will start-up during the second half of calendar 2017.

 

In Southern Africa, the Energy Business markets and sells liquid fuels, pipeline gas and electricity. Internationally, we develop, implement and manage Sasol’s gas-to-liquids (GTL) business ventures based on our proprietary technology, creating higher-value products.

 

SALIENT FEATURES

Reported an increase in our recordable case rate, however, we did not experience any serious injuries or significant transportation incidents 
Maintained resilient operating margins despite macro-economic headwinds and fuel transport sector strike; benefited from sales channel optimisation 
Extended our retail sales presence, Sasol recognised as one of South Africa’s most valuable brands by Brand Finance 
Recorded strong cost performance, cash fixed costs decreased 5% in real terms 
Completed Loopline 2 ahead of schedule and below budget, increasing capacity of Mozambique-to-South Africa gas pipeline 
Supported our partners in Mozambique gas-to-power plant amid country’s fiscal crisis 
B-BBEE partner Tshwarisano disbursed R132,7 million in dividends to the Batho Trust’s broad-based beneficiaries 
Partial impairment of our US gas-to-liquids project amounting to R1,7 billion 
ORYX GTL increased capacity utilisation, excellent safety and cost performance 
EGTL successfully restarted after scheduled maintenance 
Provision raised of R1,2 billion for taxation payable subject to on-going litigation in respect of crude oil procurement activities 
Licensed out proprietary Sasol Slurry Phase LTFT™ technology to Uzbekistan GTL project 

Performance summary

We continued to pursue our work to increase our retail footprint and maximise margin. In the year we opened 10 new retail convenience centres and plan on opening 10 in 2018. We increased our share in the liquid fuels market however the macro-economic headwinds including a weak economy, a stronger rand and only marginally firmer oil price as well as a strike in the fuel transport sector and lower fuel differentials led to a 20% decline in operating profit. Excluding the effect of the Natref downtime and lower allocated volumes from SSO, our liquid fuels sales volumes increased by 1%. Normalised operating margins remained resilient as we continued to sell more liquid fuels through higher-margin sales channels, including non-refining wholesalers, commercial buyers and our growing retail presence.

We partially impaired our US gas-to-liquids project by R1,7 billion. Our joint venture power plant in Mozambique, Central Térmica de Ressano Garcia (CTRG), operated well at design capacity. Our power purchase agreement to supply Eskom came to an end in 2017. ORYX GTL, our joint venture in Qatar, achieved a utilisation rate of 95%.


STRATEGIC OBJECTIVES FOR WHICH WE ARE ACCOUNTABLE

  • Optimise liquid fuels marketing channels
  • Deliver selective GTL opportunities and grow low-carbon power generation


Looking ahead

We have launched a project to maintain competitive advantage of ‘reliability of supply’ by executing a customer excellence approach. We continue to drive South African liquid fuels sales to the higher-margin retail and commercial sectors. Engaging with stakeholders in the energy sector on the evolving energy landscape is a priority. In Qatar, the focus remains on maintaining high utilisation rates and an excellent safety record. In Nigeria, we are supporting the ramp-up of EGTL to design capacity. Following the commissioning of Loopline 2, we look forward to the first full year of the gas pipeline’s increased transmission capacity. In 2018, CTRG’s electricity production will decline, as planned, to an average of 135 MW, from 2017’s average of above 152 MW as an agreement to process additional gas comes to an end.

 

Base Chemicals markets commodity chemicals from our upstream Fischer-Tropsch, ethylene and propylene value chains. Performance Chemicals markets commodity and differentiated performance chemical products which include organics, inorganics and wax value chains. We are able to adjust our product slate somewhat in response to market dynamics.

 

SALIENT FEATURES

Advanced on business readiness ahead of start-up of the HDPE joint venture and the LCCP 
Base Chemicals recorded improved safety performance and fewer transport incidents; Performance Chemicals reported a deterioration 
Performance Chemicals delivered resilient average gross margins, while Base Chemicals gross margins were largely in line with the previous year 
Reported 2% increase in sales volumes at Performance Chemicals, 3% increase at Base Chemicals 
Performance Chemicals benefited from start-up of second phase of Sasolburg wax expansion and made significant progress on business improvement initiatives 
Base Chemicals benefited from increased polypropylene volumes flowing from Secunda C3 expansion project 
Performance Chemicals secured final investment decision for new ethoxylation plant in China 
Launched Digital Catalyst pilot programme to improve customer experience using digital platforms 

Performance summary

The stronger rand and lower ammonia prices contributed to a 11% decline in Performance Chemicals’ operating profit, however sales volumes, normalised for planned shutdowns and the disposal of the US wax facility, rose 2%. Management interventions improved our cost position across a number of value chains and an increase in ethylene prices supported improved margins in the US. Demand for inorganics products remained healthy as we continued to differentiate our product offering. In Germany, we achieved beneficial operation of a project to increase our production capacity of Disperal®. We are also undertaking a number of incremental debottlenecking projects that have attractive returns and a short payback period on capital invested. After several years of strong growth in our Chinese surfactants business, we received approval to more than double the production capacity of ethoxylates in the region.

Base Chemicals benefited from a full year of additional volumes from the C3 expansion project in Secunda, as well as planned stock builds at the end of the previous financial year. This contributed to a 3% increase in sales volumes. Operating profit increased 25%, largely due to the reversal of the impairment of our low-density polythylene cash-generating unit in the US, stronger sales volumes, better dollar prices offset by the stronger rand/US dollar exchange rate.


STRATEGIC OBJECTIVES FOR WHICH WE ARE ACCOUNTABLE

  • Drive value chain optimisation
  • Drive selective growth based on feedstock, market and/or technology advantage


Looking ahead

We continue with our business readiness work for the HDPE joint venture and the LCCP. This work includes streamlining of business processes and systems, as well as building organisational capacity. The HDPE joint venture is due to reach beneficial operation in the second half of calendar 2017. While some 92% of the new LCCP Performance Chemicals output will be placed with existing customers, Base Chemicals is making good progress to secure new customers for most of the new US output.

In 2018, we expect greater sales volumes of wax and co-monomers as the Sasolburg wax plant and the Lake Charles ethylene tetramerisation plant continue to ramp up. We also look forward to greater sales of polypropylene as we continue to benefit from the C3 expansion at Secunda. Demand for commodity chemicals is expected to keep growing in line with global GDP, but in differentiated chemicals, new applications and polyethylene, demand is seen outpacing GDP growth. We will continue to pilot the Digital Catalyst programme to transform the customer experience using digital platforms.

 

Our Group Technology function is made up of Research and Technology, Capital Projects as well as Engineering and Project Services. Mega Projects includes all projects of over US$1 billion, with a particular focus on the LCCP and the PSA. Together these functions create value by refining technologies, maintaining existing operations and establishing new ones, growing the business.

 

SALIENT FEATURES

Regrettably Mega Projects had one fatality at LCCP; Group Technology recorded an improved safety performance 
Progressed LCCP: 74% complete by year-end; advanced PSA to detailed engineering stage within budget and schedule 
Completed second phase of Sasolburg wax expansion, within cost and schedule, producing on-spec product 
Brought Mozambique-South Africa gas pipeline capacity expansion project (Loopline 2) on line ahead of schedule and below budget 
Advanced a number of projects to support existing operations, securing base volumes 
Licensed out (in a non-equity manner) our proprietary Sasol Slurry Phase LTFT™ and associated water technologies 
Extended our research to continuously improve technologies, invested R1 billion in research and development 
Started commercial utilisation of our next generation Fischer-Tropsch GTL catalyst in the EGTL plant in Nigeria 
Continued to focus on securing competent skills through graduate development programme, bursaries and support to universities 

Performance summary

We continued to improve our capital and project management processes. Mega Projects made good progress on the LCCP and PSA and completed the second phase of the wax expansion project at Sasolburg within cost and schedule. By year-end, the LCCP was 74% complete and on track for the start-up of the first units in the second half of calendar 2018. Regrettably, we reported a fatality on the LCCP, that of a service provider Mr Tyler Truett on 5 April 2017. We have investigated the matter and lessons learnt are being shared with the teams. The PSA surface facilities project was on track, having achieved 74,5% progress on detail engineering and procurement activities required in support of the detail design and preparation for site construction. Since 2011, around 80% of our capital projects have been completed on or under budget and half have been on or ahead of schedule.

Group Technology worked with operations to secure Sasol’s volume base by focusing on plant stability, energy efficiency and reliability. We continued to hone our business processes and nurture talent, running the graduate development programme and overseeing the development and placement of engineers and scientists. We extended our research to improve our proprietary technologies. By the non-equity licensing out of Sasol’s LTFT™ GTL technology to Uzbekistan, we are securing our GTL resources and have an opportunity to continue to optimise the technology.


STRATEGIC OBJECTIVES FOR WHICH WE ARE ACCOUNTABLE

  • Continuously improve existing asset base and maintain Sasol’s technological lead
  • Drive selective growth based on our technology advantage
  • Project execution excellence

Looking ahead

We expect to close out engineering for most of the units on the LCCP by the end of the third quarter of calendar 2017. Given the on-going detailed assurance processes we follow, we are confident about meeting the cost and schedule targets and that risks can be managed within these. On the PSA project, site construction activities and the balance of procurement commences early in the new financial year. The civil and structural construction works are expected to near completion at the end of the financial year. We continue to support Sasolburg Operations to ramp up the wax expansion project.

Our focus is on technology as an enabler of the Group strategy, nurturing and growing the existing Southern African and global value chain while ensuring long-term sustainability. We aim to improve project execution by implementing lessons learnt from previous projects. Our research of the application of renewable energy within the existing Sasol business is on-going. We also continue to engage with potential GTL technology licensees.

Reporting legend

Integrated Report
Annual Financial Statements
Sustainability Reporting
Form 20-F