Africa-Focused Energy Companies Prioritize Cost Savings

Sasol and Tower Resources have revealed their intentions to prioritize cost savings in 2016 amid the low oil price environment.

As part of its company-wide business performance enhancement program, Sasol aims to deliver sustainable cost savings of R4.3 billion ($279 million) by the end of the 2016 financial year. The company confirmed that its plan is nearing completion, having already resulted in cost savings of R3.1 billion ($201 million) as at December 31, 2015, and revealed that it will be ramping up its BPEP savings target to R5 billion ($324 million) by the end of the 2017 financial year.

Due to a drop in oil prices to around $30 per barrel, Sasol has also extended the scope of its ‘low oil price response plan’ to run through “at least” to the end of 2018, “ensuring continued balance sheet strength and earnings resilience at notably lower oil price scenarios”, according to a company statement. The cash savings target range has increased from R30 billion ($1.94 billion) to R50 billion ($3.24 billion) to between R65 billion ($4.22 billion) and R75 billion ($4.87 billion). In addition, sustainable cash cost savings are expected to increase to R1.5 billion ($97 million) by the 2019 financial year, up R500 million ($32 million) from the previous guidance.

Fellow Africa-focused energy firm Tower Resources has echoed Sasol’s sentiment to save costs in its latest financial statement. In a joint statement, the oil and gas exploration company’s chairman and chief executive said that Tower Resources intends to keep its near-term commitments and costs “low” and revealed that the company plans to finance its higher cost activities “through farm-outs to larger companies where and when appropriate”.

Tower Resources is expected to need to raise additional funds in 2016/17 in order to maintain sufficient cash resources for its working capital needs and its committed capital expenditure programs for the next twelve months. The directors of the company, however, are “confident” that they can raise sufficient funds from “the capital markets, private investment, farm-outs or asset disposals and as a consequence, believe that both the group and company are well placed to manage their business risks successfully despite the current uncertain economic outlook”.

Sasol’s operational profit decreased by 50 percent in the first half of the 2016 financial year to R14.9 billion ($969 million). During the same period, earnings attributable to shareholders decreased by 63 percent to R7.3 billion ($474 million), from R19.5 billion ($1.26 billion) in the prior period, and an interim dividend of R5.70 ($0.371) per share was implemented, which was 18.6 percent lower compared to the prior period.

Tower Resources recorded an operating loss of $9.78 million in the year ended December 31, 2015, which marked a significant improvement from the loss of $56.60 million registered in 2014.