South Africa's Sasol (NYSE: SSL) has seen many of the same pressures on its business that other energy companies have seen. Despite Sasol's capacity to produce synthetic fuels, its stock has proven just as vulnerable as traditional exploration and production companies in the oil and gas sector to the tough conditions facing the market right now.
Continue Reading Below
Coming into the release of its production and sales metrics for its fiscal third quarter, Sasol investors wanted to know how the company would respond to the ongoing challenges facing the energy company. Sasol's numbers showed mixed results, further describing the uncertainties in the industry right now. Let's look more closely at Sasol to see what its latest release says about the company going forward.
Image source: Sasol.
Sasol sees some production gains, some production declines
Sasol's fiscal third-quarter production and sales metrics for the nine-month period included pluses and minuses. Overall, there wasn't any clear unifying theme to describe Sasol's results as a whole.
On the exploration and production side, cross-currents continue to push Sasol in different directions. In natural gas, production figures rose at Sasol's joint venture in Mozambique, while results from the company's Canadian operations were mixed, including a pickup in dry natural gas production but a considerable drop in condensates. Crude oil production in Gabon fell by nearly a fifth to 991,000 barrels. External sales generally followed those same trends.
In the mining unit, fairly weak conditions prevailed. Production of coal dropped by more than 10% to 26.3 million tons. External sales were also down by double-digit percentages.
However, the energy unit saw more ups and downs. Synfuel refined production production fell to 24.5 million barrels, and production at Natref was down as well. However, the Oryx GTL unit showed some gains on production rates, helping to offset the nearly complete disappearance of production from the Escravos project. Sales of liquid fuels were flat to down slightly, while sales of natural gas and methane-rich gas inched higher from year-ago levels. Sasol boasted 394 retail convenience centers, up by 10 from year-ago levels.
Counting on chemicals
One area where Sasol saw solid gains was in the base chemicals segment. Sales of polymers led the company higher, picking up more than 100,000 tons to 1.05 million. More modest gains in solvents, fertilizers, and explosives contributed to an overall sales gain of almost 8% to 2.375 million tons. Pricing was also solid, with a gain of $6 per ton to $787.
Yet the performance chemicals arena was more mixed. In terms of production volume, Sasol's sales of organics were strongest, with a 3% gain to 1.74 million tons. The company's other segment also saw extensive sales gains amounting to a 15% rise from year-earlier level, and only the waxes division posted a decline, falling 10%. However, weakness in the South African rand seemed to hold back Sasol's sales from a monetary perspective. Organics sales were flat when measured in rand, and declines in waxes and other products were magnified. Overall, Sasol's sales dropped about 4% to 50.5 billion rand.
So far, Sasol investors aren't seeing very many signs of a significant rebound for the energy company. In all likelihood, it will take an increase in the prices of crude oil, natural gas, and other energy products on the open market for Sasol to make progress. In addition, Sasol will also have to see an increase in general activity levels in the industrial economy, especially those sectors that rely on Sasol's base and performance chemicals business to operate. Only once all those factors come together are shareholders likely to see clear and unequivocal signs of fundamental improvement in Sasol's numbers going forward.
10 stocks we like better than SasolWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Sasol wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of May 1, 2017