Sasol's CEO Hosts CFO Newsletter Conference (Transcript)

Nov.25.13 | About: Sasol Limited (SSL)

Sasol Ltd. (NYSE:SSL)

CFO Newsletter Conference Transcript

November 25, 2013 8:00 AM ET

Executives

David Constable - Chief Executive Officer

Paul Victor - Acting Chief Financial Officer

Bernard Klingenberg - Group Executive, Southern African Operations

Ernst Oberholster - Group Executive, International Energy, New Business Development and Technology

Fleetwood Grobler - Group Executive, Global Chemicals and Acting Group Executive, North American Operations

Analysts

Gerhard Engelbrecht - Macquarie

Nishal Ramloutan - UBS

Alex Comer - JP Morgan

Tassin Meyer - Citigroup

Jarrett Geldenhuys - Investec

Nic Dinham - BNP Paribas

Leigh Bregman - RMB Morgan Stanley

Operator

Good morning and good afternoon, ladies and gentlemen. And welcome to Sasol’s CFO Newsletter Conference Call. Opening remarks will be made by David Constable, Chief Executive Officer; and Paul Victor, Acting Chief Financial Officer. The call then be followed by Q&A session. A copy of the CFO newsletter released this morning is available on Sasol’s Investor Center webpage, www.sasol.com.

I would now like to turn the call over to David Constable. Please go ahead, sir.

David Constable

Thanks very much, Operator. Good morning, good afternoon, everyone, and thank you for joining us for today’s conference call. With me here in Johannesburg are Paul Victor our Acting Chief Financial Officer; Bernard Klingenberg, Group Executive, Southern African Operations; and two of our recently appointed Group Executive committee members, Ernst Oberholster, Group Executive, International Energy, New Business Development and Technology; and Fleetwood Grobler, who will be effective on December 1st will be our Group Executive, Global Chemicals and Acting Group Executive North American Operations.

I’ll kick off the call by highlighting the key management interventions we took in FY13, which we are seeking to capitalize on in finance year ‘14. I would also talk you to the changes to our operating model and remaining management structure implications. Paul will then take you through our financial and operational highlights for the first quarter of FY14. And finally, we will facilitate any questions that you may have.

Let me start by giving you a quick overview of some of the key strategic decisions we took in FY13 since we are currently building on. For us FY13 was the year of prioritization and focus and delivering growth.

This past financial year after careful critique of our Group wide project pipeline and a rationalization of the number of internal initiatives we were undertaking across the Sasol Group, we prioritize the urgent and important. We horned in our Southern Africa and the U.S. as the two regions we will be spending our energy on in the near-term.

During this period we narrowed our growth focus areas by reevaluating our near to medium-term strategies and a purposed project schedules. We curtailed our coal-to-liquids aspirations and took decisive action regarding our Uzbekistan GTL participation, the timing of Canada GTL and the phasing of our U.S. growth programme.

Turning now to the first quarter of FY14, we accelerated management interventions in the following areas. First, we restructured and redefined the mandate for our Sasol Technology Group. Second, we prioritized our new energy aspirations. Third, we concluded an internal assessment of FT wax, which resulted in the list of important guidelines to address areas of concern and most importantly, to ensure that we learn from the projects front-end planning missteps. And fourth, we have reevaluated the makeup of our senior leadership team in the U.S.

To this fourth point with our Lake Charles projects coming into a critical phase, it’s clear that we need to man up on our local talent in the U.S. To lead the charge in the coming weeks, I look forward to introducing you to our new Executive Vince President, International Operations, who will be accountable for all of our operations outside of Southern Africa, including our U.S. Mega Projects.

Having led the works on projects in United States for several years, I know how critical first hand U.S. Gulf Coast experience and knowledge is. This is important not only in the context of the EPC contracting environment, but equally crucial when we look at our engagements with the local communities at the state and federal level. It goes without saying that the past several months have been the time of significant change at Sasol and here I’m speaking more specifically about our operating model adjustments and personnel changes at the upper tiers of our organisation.

As I mentioned at the start of the call, our newest GEC members are with us today, Ernst and Fleetwood. In additional, Paul is also relatively new to the team serving us our Acting CFO. With new blood come stress prospective and insight, Paul, Ernst and Fleetwood with their 63 years of institutional knowledge combined have hit the ground running and have really been great additions to our GEC team.

Now you would have seen from our SENS announcement on November 1st, while we are introducing a further member to the group executive, our new Chief Technology Officer. Here to make a meaningful difference and to add value within our GTL project context in particular and in-depth knowledge of Sasol’s proprietary technology is vital, on considering internal candidates for this position who are best placed to ensure the ongoing and improved competitiveness of our already sought after proven technologies.

Of course, management structure changes do not occur a vacuum, here a complete overhaul of our Group operating platform, which recognized Sasol along the value chain as oppose to our existing by product model has a direct bearing on how we organise ourselves.

Early this month we confirm the top management structures and senior leaders who will support the GEC in designing and embedding the new operating models, processes, procedures and systems over the next 12 to 18 months.

Although, the effective date of these appointments is July 1st next year, a transition on the scale and vision requires meticulous planning, coordination and engagement in the months proceeding the effective date, which we are referring to as day one.

As we seek to enhance our existing operations and drive our international growth programme, we will be organising ourselves more effectively into specialized and streamline groupings. These groupings are more specifically operating business units, regional operating hubs, strategic business units and Group functions.

To realize significant efficiency benefits from our new operating model, our initial focus will be on first, accelerating productivity improvement in our operating business units and regional operating hubs, number two, driving marketing and sales excellence through our strategic business units and number three, establishing fit for purpose value adding and cost effective Group functions.

A complete organisational transformation as envisaged takes time, the team is hard at work to get us through our day one target date, while ensuring that our business is continue to deliver results in the safe, reliable and consistent manner. As we indicated in September, we will be providing more details to you after our interim results to announce in March.

With that, let me now hand over to Paul who will unpack the CFO letter in greater detail. Paul?

Paul Victor

Thank you, David. Good morning, good afternoon to everyone and thank you for joining us on the call today. I would like you to take you through some key financial and operational highlights from today’s announcement and then open the call for questions.

We’ve delivered strong operational and financial results for the first quarter of our 2014 financial year, despite ongoing global economic uncertainty and industrial actions in South Africa.

The Group benefited from a 21% weaker rand/U.S. dollar exchange rate. The average Brent crude oil price improved slightly and chemical prices were also higher compared to the prior year comparable period, refinery margins and petrol differentials were lower compared to the comparable period.

Operational performance in most of our SA Energy businesses remained strong. Synfuels continued to deliver strong operational performance. Synfuels successfully completed the largest shutdown in history with the total and phase shutdown of the east factory in September.

Year-to-date production for the three months till September was 1.7 million tonne or 5% lower than FY’13. Normalizing the impact of the full shutdown, Synfuels volumes increased by 2% compared to the comparable period, run rates in October were also very strong.

Our full year volume guidance still remained unchanged as of June 7.3 million tonne and 7.5 million tonne. Sasol’s oil production volumes were 7% lower compared to the comparable period mainly due to cutback of production at Natref as a result of higher 93 unleveled petrol stock levels. Plants and actions are in place to increase the production of 95 ULP to minimize the impact of Natref’s cutbacks.

Focusing on our international businesses, ORYX continued to exceed our expectation in the first quarter achieving 1.5 million barrels of production that leads Sasol’s 40% share over this period.

During this period, the plant operated at an average of 101% of design capacity, despite maintenance activities at our gas feedstock supplier. We expect that the plant to operate at an average utilization rate of about 90% for the current financial year.

Although, meanwhile gas prices have improved compared to the prior period -- comparable period, the profitability of our Canadian shale gas assets continue to remain under pressure due to low gas prices.

The business remained cash positive on an EBITDA level. We expect the current operating loss position to continue for the full 2014 financial year. However, this change the improved drilling costs and performance is very encouraging with drilling costs now being lower than our original targeted levels.

Earlier this month, our partner, Talisman, announced their intention to dispose of their 50% share of the Montney Basin shale gas assets. We have a right of first refusal to match the offer within 30 days of the notice from Talisman which was received on 18 of November. We are currently in the process of evaluating this opportunity and if you like consequences. Our decision to exercise the option will be made in the following weeks.

Our chemical businesses generally continued to face headwinds. Although, we have seen some improvement in the chemical process, historically lower chemical process and higher feedstock process has contributed to continued margin pressure, this in fact has been softened by the weaker rand/dollar exchange rate.

Focused business improvements plans are yielding positive results from service loss operations more effective and improved capital level and cost change below inflation. In particular, we are seeing some recovering of polymers and solvents businesses, with improved margins, high sales volumes and benefits realised from the implementation of the turnaround plans in 2013.

The polymer business excluding Arya Sasol Polymer Company realised an operating loss of 1.8 billion during FY’13. Our forecast for FY’14 is still a loss, but reduced to about 800 rand range. This is part of our engagement in ASPC, was effective 16 August, 2013. We therefore, have no longer any engagements in Iran.

Our other foundation businesses and especially, our US O&S business continued to perform very much in line with our 2014 target. On a cost front, the cash fixed costs excluding once-off items, growth costs and the impact of exchange rates, reflect continued inflationary pressure mainly due to increased labour costs.

Year-to-date, normalised cash fixed costs are trending slightly above indicative South African PPI, and we expect this trend to remain slightly above PPI trend for the 2014 financial year.

Synfuels’ year-to-date cash cost per unit is above South African PPI rate, mainly due to electricity and feedstock cost increases where feedstock cost increase is internal to the group. Cost reduction is a specific target within our short-term incentive scheme and, accordingly, management continues to focus on the controllable cost elements.

Our results highlight that and as David mentioned earlier, we have made real progress on our business performance enhancement programme, we will provide more details on the business case, progress and implementation costs of the project at our interim results announcement in March next year.

In the meantime, we continue to focus on those factors within our control, including cost containment, operational efficiencies, margin improvement and working capital management.

Focusing now on our capital projects and capital cash flow, our guidance for FY’14 will remain at 42 billion rand, due to the high capital expenditures associated with our international and mine replacement projects as well as the impact of a weaker rand. The progress on most of our capital projects will remain on track, as communicated during our recent investor road shows.

We have achieved beneficial operations on 18 October, 2013 on our Ethylene Purification Unit in Sasolburg, which will add 48 kilotons per annum or volume to our polymer business and will also enable improved operations, flexibility and stability. FID decision on the U.S. Ethane Cracker and Uzbekistan projects are expected during the first half of calendar year ‘14 and remains on check.

We continued to make steady progress to develop our Production Sharing Agreement license in Mozambique. We are on track to submit our Field Development Plan by February 2015 to the relevant authorities. We are experiencing some further costs and regional challenges on our FT wax expansion project.

Cost increases on Phase 1 of 1% to 2% are imminent. Phase 2 may be impacted by this potential delay. No further increments are currently expected for the FT wax project. Focusing on our cash generation and balance sheet position, we continue to maintain a very healthy cash position, underpinned by a strong balance sheet and cash flow generated from our foundation businesses.

This will enable us to successfully sustain our current operations and fund our growth aspirations while still delivering attractive returns to our shareholders. Based on the group’s solid business performance and favorable macro economics, we remain confident that we are positioned well to deliver strong earnings growth for the 2014 financial year, compared to the reported attributable earnings of 26.3 billion rand in the 2013 financial year.

We will provide an update on earnings guidance once we have a reasonable degree of certainty on the interim results for 2014 financial year, taking into account any adjustments from our half-year reporting closure process and remeasurement effects.

I will now hand back to David who will open the call for questions.

David Constable

Thanks, Paul. And I think we will ask the operator to facilitate the question and the answer. Operator, please, you go ahead.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions) Our first question comes from Gerhard Engelbrecht from Macquarie. Please go ahead with your question.

Gerhard Engelbrecht - Macquarie

Good afternoon and thank you. Paul, you talked about you being well positioned for strong earnings growth, would you mind sharing your, quantifying some rand/dollar assumptions with us when you make that statement?

And secondly, would you maybe just explain why you see the big drop-off in the utilisation rates at ORYX for the remainder of the year? And then lastly, you talked in the CFO newsletter about the reservoir pressure in Mozambique falling, could you maybe give us an idea of the life of the gas fields at current consumption levels? Yeah, I guess those are three.

David Constable

Gerhard, our strong attack would be the first one, the assumptions and then utilisation at ORYX. I think Ernst can help us along with the Mozambique pressures and the low compression pressure we are installing over there.

Paul Victor

So basically for the remainder of the year in terms of our latest forecast from a rand/dollar exchange rate, we see it in the range of a 9.18 rand per cent range, that’s the range that we anticipate. On the Brent between 100 and 110, that’s the range that we consider.

Ernst Oberholster

Hi, Gerhard. And all this is mainly, as the feedback for upside is that we have freely experienced I think as you know some cracks in the header pipings in the ATRs. And we sold a new stake in earlier this year in March, when we did the full shutdown and we are considering whether we should take a shutdown to check the condition of that enterprise in early part of next year. If we can and I think that’s the reason why we are still forecasting around 90%. If we elect not to do that and that’s a choice by ours, if they elect not to do that we could see quite a bit higher volumes.

On the second question that you posed with regard to the life of the fields -- as we produced, the compression drops and you have to continuously pick that up. But that doesn’t deal necessarily with the life of the fields.

We had some contraction with the product that you also note -- for what period we can supply the gas out of Mozambique, those from a production and sales point of view, and we continue to be in negotiations with the government to extend that, there is enough gas in the field and if you would also see in the document, we are progressing well on the PSA side and that could add significant volumes for a significant period. So, are we comfortable that we should overtime be able to supply Secunda up to 2030, yes, we are comfortable?

Gerhard Engelbrecht - Macquarie

Okay. Thanks guys.

Paul Victor

Thank you.

David Constable

Thank you.

Operator

Thank you. Our next question comes from Nishal Ramloutan from UBS. Please go ahead with your question.

Nishal Ramloutan - UBS

Hi. Good afternoon, everyone. Just a couple of things from my side, just on SA polymers, polymers prices up, I see quite nicely, I see you still forecast to be loss making in polymers. Now do you expect that the EPU5 and C3 stabilisation projects will actually get you back to a profitable situation or do you actually need further price increases and/or cost savings in that division?

And then just on FT wax project, the process -- what do you imagine the costs of ramp in Phase 2 could be, I mean, clearly there’s going to be an impact from Phase 1 overall and is it too late to cancel the Phase 2 of the project?

And maybe just give us an update on the wax market, I think previously you indicated that the wax market was fairly weak and how does that look now?

David Constable

Thank you, Nishal. Certainly, on polymers, as we mentioned on the road show, we see it’s starting to turn with the turnaround in the business that they are working on and the fact that as we are starting to see as we have messaged here, the 800 million loss versus I think 1.8 billion the previous year, and we see it going slightly positive further out based on favorable macroeconomics and I think as other have talked about the chemicals market starting to turn in the middle of next calendar year.

So putting that altogether we see and along with EPU5 and C3 stabilisation coming along to help us stabilise the plants and get much more favorable operations of polymers than we see is going positive in FY’15.

INEOS as well, I guess that we also talked about at -- during the road shows. INEOS’ joint venture we’ve signed up -- signing up an MOU to go into a joint venture with INEOS over in Texas, which is for 470,000 tonnes a year high-density polyethylene plant coming on late in calendar year ‘15 to add volumes to the polymers as well. So, lots of good things starting to happen for polymers to take them forward.

FTWEP Phase 2 cost, Fleetwood, I think you can talk to that, as well as what we see in the medium and hard wax markets as well. Fleetwood?

Fleetwood Grobler

Yeah. Let me respond to the question. I think, first of all, Phase 2 is planned to be executed in the next year as we reset the baseline for that, but with respect to that all is in our plan. I think our market situation with respect to was if you look at the outlook, yes, the wax market is performing softer than we planned, but that is nothing on to work. We assume those softening of the market in terms of our economics for the project, but we are watching closely how the markets behaving in the longer term.

David Constable

I think I would add, Nishal, that the Phase 2 with the three investments we have made in Phase 1, Phase 2 is a very robust opportunity for us that we really want to take advantage of. And so it’s the returns on that price are very strong and definitely proceeding and the cost that we are seeing based on Phase 1 are not anything that we can’t deal with in Phase 2, so thanks. Operator?

Operator

Thank you. Our next question comes from Alex Comer from JP Morgan. Please go ahead with your question.

Alex Comer - JP Morgan

Yeah. Of course, a couple of questions. Just back again to the polymers business. I mean you have given a very specific number for the year end and I think the guidance was for small-offs some 800 million is somewhat bigger than that? I was just wondering if some -- you might give us some forecast for the other chemical businesses as you seem to be okay giving polymers, one would anticipate based on what I would asked that we should be looking for quality profits increase this year?

Secondly, I was just wondering, if you were to enter into the same terms and conditions that progress have on Talisman Gas, what impact would that have on your earnings?

And my third question, you are talking to tax about managing what you can control, but your remuneration policy still seems to be largely dependent on the rand oil price and we saw in the AGM a quarter of your investors voted against that? So I just wondered what your plans are to engage with your investment committee on the remuneration policy?

David Constable

Thanks Alex. I think we will start with polymers and I think we did guide to -- it might have been a little less than 800 but within the 500 million to 600 million range based on what we are seeing right now and where -- where we think macroeconomics will be through FY’14 as we have been able to give that 800 number and maybe that’s conservative possibly, but Paul, do you want to add to that?

Paul Victor

Yeah. I want to add to it. So basically if -- in terms of our assumptions on chemical process, I think we are conservative. So basically one should see with how it plays out. Maybe just your other question on other chemical businesses, so, Alex, we are not going to provide kind of a forecast on the other chemical businesses.

I’m really going to state what I have said in my commentary is that most of the other businesses remained on track in terms of the 2014 targets. Those targets are fixed targets and ultimately contribute towards the Groups overall earnings growth on a year-by-year basis. So from that perspective not only the chemical business but also other business are remained on track.

David Constable

If I can maybe leading, Alex, on your question on the impact on earnings if we were to execute the, I think, it’s early days. We are considering the whole package of issues, the package of impact at this point in time and we would like to come to a conclusion in the next few weeks and I think it’s too early to speculate on what the impacts on earnings could be.

Alex Comer - JP Morgan

Okay. Thanks.

Paul Victor

Just on rem co policy, I think we were overall pleased with -- I think it was almost just about 70% in favor of our remuneration policy this year, nonbinding vote. Alex, we continue to engage heavily with our investor base getting their feedback, working on what we can do to ensure that the majority of our shareholders not only understand our rem co policy, that see that it is driving the right behavior within management.

So up to and including tying 100% of our long-term incentives to performance targets versus just having a portion of them tied to performance targets in the past. And many other adders that we have been able to change in the last couple of years to take it in the right direction. It’s always a challenge to keep all of our investors happy. Some like to talk about return on invested capital, but in our growth phase, that’s something that we have a disagreement on.

So the things like that, we continue to engage on and we will continue to do that to hopefully, get that vote even higher. It wasn’t 30% against, there were some abstentions. Because only parts of the rem co policy that they were uncomfortable with, so it was a bit of a mix bag from that standpoint, but we continue to work hard on that. And the remuneration committee on the Board is definitely alive to the topic.

Alex Comer - JP Morgan

Okay. Maybe I will just ask one thing, I just want to know on this polymers thing. How much of you lost in the year so far, I mean, last you gave a number in terms of your losses I think it was 912 million to October, so I just wonder where we are at the moment?

David Constable

We have lost round about 300 million so far.

Alex Comer - JP Morgan

You lost 300 million so far.

David Constable

Yes.

Alex Comer - JP Morgan

Thank you.

Operator

Thank you. Our next question comes from Tassin Meyer from Citigroup. Please go ahead with your question.

Tassin Meyer - Citigroup

Good afternoon, everyone. Just two questions from me. Firstly, just in terms of the Synfuels outlook -- clearly, it’s had a pretty strong October yet you have maintained your guidance for the full year. If we assume FY ‘15 as a normalised year, based on what we know for October and the remainder of 2014, will you be able to hit above the 7.6 million tons current run rate at Synfuels?

And then secondly, just in terms of the Natref operating rates -- operating at lower rates, how long do we expect that to continue and what will we expect the full year impact at Natref for the issues of running down your 93 stocks at the moment?

David Constable

Okay. Thanks, Tassin. On the Synfuels volumes, we had an excellent shutdown as you read about and very pleased to see that shutdown behind us successfully, the largest in history for the company and as Paul said, we are still guiding 73 to 75 this year. And for FY’15, I think as we talked in the road show, it will most likely we will be in the 74 to 75 to 76 region and that’s probably where we will land on FY’15 if all goes according to plan.

And we do have the gas-heated heat exchange reformers, which will be put in the first half of FY’15. So we need to take that into consideration as we did with last pair that went in. So, I think from that standpoint that’s about where we are in volumes and Bern, if you anything to offer to that or you can take Natref question as well on where you think we will end up on the Natref throughputs?

Bernard Klingenberg

Okay. Just to remind you that the feedback and comments on Secunda growth takes us to the 7.3 numbers, so that’s kind of in the middle of the range. It will probably be getting to in the next financial year. In terms of market, market volumes are picking up and we have to increase the utilisation of the market facility over the next few months. The combination of demand and getting the balance right in terms of the mix of the various products that will have all play into that space, but we certainly have to see an increase in the utilisation.

Tassin Meyer - Citigroup

Okay. Thank you.

David Constable

Thanks, Tassin.

Operator

Thank you. Our next question comes from the Jarrett Geldenhuys from Investec. Please go ahead with your question.

Jarrett Geldenhuys - Investec

Thank you very much. Good afternoon everyone. To start with the questions you have been asked on the call a little bit later. I just wanted to check if the CapEx guidance has changed at all from previous, I haven’t seen anything in the letter. And second of all, we’re getting relatively close to this carbon tax issue. It’s not in the majority of forecasts that I speak to on the buy side or the sell side. So, is it anything that we should be taking significant cognizance of the 1st of deadline, or do you think that can wait for a little bit longer? Thank you very much.

David Constable

Thanks, Jarrett. On CapEx, I think we still at 42 billion. Go ahead, Paul.

Paul Victor

Yeah. We have voiced it. I think you probably just missed it, Jarrett. But the guidance is still 42 billion for the year, mainly driven full by expansion projects and the mine replacements and then obviously also the weaker rand, so it’s still at 42 billion.

Jarrett Geldenhuys - Investec

Okay. Thank you.

David Constable

On carbon tax, I think there is probably, I would say cautious optimism around the table here that January 1st 2015 will probably be moved out. There has been quite a bit of engagements with the portfolio committee on this subject and the fact that we believe that carbon tax’s current form is not appropriate and that more work needs to be done to ensure that we go into it with our eyes open.

So, I think that’s what we are sensing here, Jarrett that we certainly were made to be known that we feel we are punching above our weight as a country and running ahead as you saw in Poland, there is no global agreement that may come in 2020. So we don’t want to obviously run out of ahead of that.

I see Japan is also up in their targets around -- a reduction to actually an increase of 3%. So, a lot more of that discussion has to take place before I think we can step up and make commitment as a country. And that’s the type of messaging we are giving and like I said, we are starting to get a sense that it could move out in time, but I couldn’t tell you how far out so. Thanks, Jarrett.

Jarrett Geldenhuys - Investec

All right. Thanks very much.

Operator

Thank you. Our next question comes from Nic Dinham from BNP Paribas. Please go ahead with your question.

Nic Dinham - BNP Paribas

Thank you. Good afternoon. Just a question about the clean fuels, is the suggestion that if the government doesn’t come up with a capital recovery mechanism that you won’t be spending CapEx on your plant to upgrade your plants? That’s the first question.

David Constable

Currently, yeah. Bernard, yeah, go ahead. Go ahead.

Bernard Klingenberg

Nic, it’s -- our position and the position of Sappi is, is that we really do insist that government tells us and tell the industry what the recovery mechanism will look like and exactly how big it will be before we make final investment decisions on clean fuels. We have reiterated that position with our Board latest last week Friday and that’s the position we are going to maintain and do maintain.

Nic Dinham - BNP Paribas

Thank you. The second question comes about Talisman. At the last results presentation in September, I asked the question about what Sasol thought about Talisman’s desire to exit from Montney. And we were reassured then by your senior exec that Talisman had no intention to do that, yet six months later they did that. So maybe you could just cast some light on what’s going on behind the scenes here please?

David Constable

Yeah, Nic, you’re correct that was the best information at that time and they had put it up for sell and taken it off the table and that’s the issue that we had. However, things at Talisman have changed. I’m sure you can find out in the marketplace that they needed to make the sales and they came on very quickly and had a call with their CEO, just before we got the right of first refusal letter. So it came very quickly and again, it was off the table and then put back on the table, so that’s where we are at right now.

Nic Dinham - BNP Paribas

Okay. Thank you. A further two questions. On the oil and gas reservoirs that you’ve discovered in Mozambique in which you’re filing a field development plan now. I guess that question is you now know there’s commercial quantities, are you prepared to reveal how much is involved in terms of gas and in oil?

And an associated question with this is that, although we know about Inhassoro, we’re not quite sure what the other reservoirs are and where they’re located. I’m assuming, they are right next door to the existing one and then I have a further question beyond that.

David Constable

So we are very excited about the commerciality of two oil and two gas plays in the PSA which are located next to the PPA in Mozambique, right around it actually. And I guess, I’ll leave it at that. We are very excited about the opportunity there and the quantities that they are potential or potentially, commercial viable. So more to come on that and when we submit our commercial production plans by February 25, 2015.

Nic Dinham - BNP Paribas

Okay. Thank you. And the question about EDM is, currently you have a deal with EDM with your new energy gas generator producing electricity. What will the commercial terms apply to the sale of electricity in Mozambique? Are you displacing South African production, same prices, or are you going to be delivering very cheap electricity to Mozambique?

David Constable

I will ask Ernst to comment on that and talk about EDM’s power purchase.

Ernst Oberholster

Thank you, Nic. So the power purchase is a long-term power purchase and we are not at liberty to divulge what that price is. But I can tell you, it does give us attractive returns on the investment. We are more than comfortable to give that. So we get our returns of course in selling the gas and then secondly, also in the capital investment on these plants. So from that point of view, we are very comfortable but just the broad price as it works, that is a confidential contract between us and EDM.

Nic Dinham - BNP Paribas

Thanks, Ernst. Thanks very much.

David Constable

We will move on to the next question. Operator?

Operator

Thank you. Our next question comes from Leigh Bregman from RMB Morgan Stanley. Please go ahead.

Leigh Bregman - RMB Morgan Stanley

Hi. Thank you very much. Really just a question on something you seem to be alluding to and I’m not entirely sure how to interpret it. You’re appointing a new Chief Technology Operator, does this mark a potential slight shift in strategy that, in addition to monetizing your GTL technology through building plant, you may be looking to license it to new players, it’s been something that’s always been in the background but has never been, well, in my view aggressively pursued by the company? Thank you.

David Constable

Thanks for the question. I think the main methods to takeaway from our technology executive coming on the GEC is the focus and refocusing that we want to place on technology -- not only technology, that portfolio is responsible for research and technology, but also on project execution which is part of that portfolio along with engineering department.

So, we felt that as a GEC that that’s all of those portfolios demanded to be at the GEC level, so that we could raise the importance of technology and our projects in the company and that’s the main reason for it.

As far as licensing our technologies, we -- that is not our main strategy, possibly in a certain situation in the certain country, we may look at that, but that’s not the mainstream strategy.

Leigh Bregman - RMB Morgan Stanley

Okay. Thank you very much.

David Constable

Thank you.

Operator

Thank you. (Operator Instructions) Thank you. We have a follow-up question from Gerhard Engelbrecht of Macquarie. Please go ahead.

Gerhard Engelbrecht - Macquarie

Hi and thank you. Just maybe on the EPU5 that’s booked now, can you give us some guidance on the operating rates that you see at Poly-1 and Poly-2 going forward?

David Constable

Thanks, Gerhard. EPU5 is up online producing healthy 47,000 and 48,000 tonnes of capacity as up and running in October. What that does in Poly-1and Poly-2, we have to get back to you on that, Gerhard, if we could.

Gerhard Engelbrecht - Macquarie

No problem. Thanks.

David Constable

Thank you. Other question from, Operator?

Operator

Thank you. We did not have time for any further questions.

David Constable

Okay.

Operator

Thank you, ladies and gentlemen, that concludes today’s Sasol CFO Newsletter Conference Call. Thank you for your participation. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!