Sasol Limited Integrated Report 2018

Overview

2018 marked the second of two very challenging years at our mining operations. 2017 was marred by a prolonged labour strike which impacted productivity, employee morale and engagement and led to several cost increases. In 2018, our operations were affected by three tragic work-related fatalities, those of Mr Dumisani Sibanyoni on 6 December 2017, Mr Mandla Mahlangu on 24 January 2018 and Mr Nefthali Sepeame on 9 February 2018. Safety remains our top priority and we are deeply concerned about these fatalities. In the year, we took decisive action to refocus on safety. We implemented a complete work stoppage to pause and reflect on our safety performance and carried out a month-long safety campaign to identify the root causes and learnings of high-severity incidents, which we are sharing across our operations. Given the fatalities and work stoppages, productivity declined.

However, to enable an uninterrupted supply, we purchased coal from third parties and reduced sales of export coal. To ensure continuity of coal supply to Secunda Synfuels until 2050, we secured a mining right for Block IV at Syferfontein colliery and received approval from the Department of Mineral Resources to acquire two important reserves – Alexander and Rietfontein.

We are committed to creating a safe place for our employees to work and to restore productivity. To this end, we implemented a business improvement plan aimed at improving productivity to levels last seen in 2011 and reducing costs through digitalisation and improving our work processes. We started to see some of the early benefits of the programme, with increased productivity from March 2018. Our employees are more positive and leaders are spending more time in mining operations to coach, mentor and support our people.

For the first time ever, we reached a multi-year wage agreement with all our participating trade unions, which will support labour stability in our operations. We continued to build our relationships with all stakeholders and embarked on leadership capability development for management and union leaders.

Performance summary

Higher gas and crude oil sales prices supported a cash profit of R2,5 billion. Our existing operations in Mozambique and Gabon benefited from higher prices, however volumes were impacted by lower demand in Mozambique and the natural decline of the field in Gabon. Despite our positive cash profit earnings before interest and tax was lower due to the impairment of our Canadian shale gas operations of R2,8 billion and the impairment of the Mozambique PSA project of R1,1 billion.

In line with our strategic objectives, we continued to pursue the development of the PSA and explore for opportunities in West Africa. Our capital allocation framework guides us in first de-deleveraging the balance sheet and then looking for smaller investments to grow the portfolio. We are advancing the process to sell our Canadian shale gas assets and will make further announcements once the process is further advanced.

In Mozambique, we completed all the defined activities in the field development plan (FDP) licence area. Results for phase 1 showed that oil production would likely be at the low to mid-range presented in the FDP while gas volumes were within the FDP’s ranges. We are evaluating the future monetisation of the project and have already realised substantial capital savings by scaling back the oil development.

Engagements have continued to enable the Central Termica de Temane or CTT, previously known as Mozambique Gas to Power (MGtP), to which the phase 1 gas volumes are committed. Phase 2 appraisal drilling results indicate gas volumes to be lower than initial estimates. After a successful annual shutdown in March 2018, our Petroleum Production Agreement (PPA) facilities continued to meet the production volumes in their gas sales agreements. Regrettably, we reported a work-related fatality. Mr Nelson Alberto Vilanculo, an employee of a service provider at our PSA drilling rig site, was fatally injured in a vehicle accident on 25 August 2017. Safety remains our top priority.

In Gabon, we focused on maximising the efficiency of the Etame Marin Permit asset and extending the producing licence beyond 2021. In line with our strategy, we farmed into the DE8 block, acquiring a 40% working interest and drilled one exploration well which was written off. We are actively looking at other licences in the region. This is part of our goal to acquire early, high-equity positions in exploration assets to provide portfolio leverage through early cycle exploration farm-outs to defray capital and risks.