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Johannesburg - Sasol [JSE:SOL] raised its cost estimate for the Lake Charles chemical project in the US by almost 25% to $11bn (R148bn) following a review.
The revision reflects “poorer-than-anticipated subsurface conditions,” requiring more ground works, weather delays, and higher construction and labor costs, the Johannesburg-based company said in a statement.
It expects most units at the project in Louisiana to start producing in early 2019, with the remainder completed by the end of that year.
“There is a very good probability of keeping the $11bn” estimate, Sasol joint-CEO Bongani Nqwababa, said by phone. “We obviously have plans to make sure it’s lower than that by improving productivity.”
The new estimate is a blow to a company that’s seen profit eroded by lower oil prices. In June, then-CEO David Constable, who implemented a series of cost-saving programs at Sasol, said an increase to $11bn was a “worst-case scenario.”
The company had forecast a cost of $8.9bn in 2014 when it made a final investment decision.
The chemicals complex, which includes a 1.5 million-tonne-a-year ethane cracker, is more than 50% complete, Sasol said Tuesday.
“The funding is in place and it will not change our” debt-to-equity gearing targets, Nqwababa said. The increased cost of the Lake Charles project won’t affect dividends, which the company intends to pay, he said.
The shares fell as much as 2.8% to R363 in Johannesburg and traded at R371 as of 10:06 local time.
Constable handed over to new joint CEOs Nqwababa and Stephen Russell Cornell on July 1. He remains an adviser on some of Sasol’s largest projects.
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