Sasol Ltd (Qtr End 6/30/07) Earnings Call Transcripts

Sep.18.07 | About: Sasol Limited (SSL)

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Sasol Ltd. (NYSE:SSL)

F2Q07 (Qtr End 6/30/07) Earnings Call

September 10, 2007, 9:00 AM ET

Executives

Lawrence Patrick Adrian Davies - Chief Executive

Kandimathie Christine Ramon - CFO

Anthony Madimetja Mokaba - Executive Director of Energy Businesses in South Africa

Analysts

Jonathan Kennedy-Good - Deutsche Securities

Giullean Johann Strauss - General Manager

Keld Rasmussen - Avior Research

Caroline Learmonth - Macquarie First South

Theepan Jothilingam - Morgan Stanley

James Twyman - UBS

Gerhard Engelbrecht - Citigroup

Alex Comer - JP Morgan

Marc McCarthy - Bear Stearns

Tassin Benn - Merrill Lynch

Presentation

Operator

Good morning and good afternoon ladies and gentlemen and welcome to the Sasol Annual Financial Results Conference Call. I would like to remind participants that we will be conducting -- excuse me, connecting to the live meeting in Johannesburg. Following the formal presentation by Sasol management, an interactive question-and-answer session will be available. A copy of today's slide presentation is available on www.sasol.com. [Operator Instructions].

Unidentified Company Representative

Today it will be both a combined presentation and conference call; we'll have Pat Davies, our Chief Executive starting off and then Christine Ramon, our CFO carrying on. Afterwards we will take questions, both from the floor area as well as from the conference participants. And now operator, I'll make a note -- we will remind you that happens where you can queue the participants. Thanks Pat, over to you.

Lawrence Patrick Adrian Davies - Chief Executive

Good morning, and welcome -- a very warm welcome to all of you, and good morning to some of you that are on the conference call. Thank you so much for joining us. It's great to see so much interest. Many old faces I see as I look around joined by some new faces as well. I hope you are feeling pretty good. We feel great. And the country is feeling great, because we had Bafana qualifying over the weekend for the Africa Cup of Nations. We had the streaming Boca [ph] demolishing Somaiya [ph], and they did that even without Sasol on their chests. They looked a little under dressed, but I think they performed pretty well, so we feel pretty good about that.

We feel good that the share price has gone up as of today, and we particularly pleased of course to be talking to you about not only great results, but also a very significant empowerment deal, and I am sure we are going to get lots of questions when we do report those. Well, let me complete with the welcome, and I think you all know Christine, Nolitha and Benny, our Executive Directors, we have members of the management team here, and our executive team which -- they will be helping with the questions and of course welcome to Pieter Cox, you know him very well. Thanks Pieter for joining us.

Good, let's move on to the presentation, and this is the theme of the presentation, a foundation for sustainable growth. These words are going to continuously come up in the course of the presentation this afternoon. The foundation is the existing business that's producing the record results. A growth, this is huge opportunity that we have is driven by the world engineered, they realize our competitive advantage, and we are going to not only build that foundation, but grow the company in a sustainable way.

We need to look carefully at this first one this time because you've to make sure there is no reference to the U. S. subprime and the exposure that we might have, happy to report we don't have any of that. And now for 2007, just to start off with before I get to the longer term damn successful, a great year, record results. Operating profit up 49% with an 18% increase in operating profits, which takes out the effects of the olefins & surfactants changes that would be a better reflection of our true performance.

Headline earnings are more modest 10% because of some capital effects, which we will discuss. Significant returns to shareholders both by way of dividend with 9 rand and 27% up, and significant quantity of shares already bought back.

Good short-term results need to be seen within the context of a broader strategic framework. We believe that despite some shift to the macroeconomic environments, which I'll come to, this remains a resilient competitive strategy. We are all familiar with the key growth drivers that are basically based on our technology, I am not going to go through them, they haven't changed it in many years. Important to note that it's not just about GTL and CTL, it's about growing our Chemicals, it's about developing our stream of opportunities as well.

But probably more importantly for today's discussion, let us see into the strategic agenda comprising the four building blocks here. We're going to be talking about all four of those building blocks. This is our existing business, largely in South Africa that is doing really well. This is the foundation of Sasol, some times overlooked the performance I think if someone overlooked because of GTL and CTL in the bottom block. That is doing really well. Benny and his team are going to be looking after the kids in South African energy cluster, we're going to be growing that with 20% growth at Secunda, we wanted that growth as we refer to there. And of course, our other assets around the world are going to be nurtured and grown as well.

The second two blocks have to do with sustainability. We'll be talking about those and particularly about the empowerment component of this one. I mean commercializing technological lead is obviously a very important focus to success in our growth driver program into the future. This is what makes us different. This is unique to Sasol, makes it different from another oil and gas company. In fact, we have a technology that nobody else has, developed to the extent that we have, and can convert huge reserves of coal and gas into much needed transportation fuels.

So, in a nutshell, our strategy is to take our competitive advantage, replicate what we've done so successfully in Secunda over so many years, use that to grow our liquid fuels business, our chemicals business, and our upstream business, and of course at the same to nurture and grow our existing efforts. I'll touch on later how our values play into this strategy as well.

But of course, not tripping to what's happening in the world around us, and there have been some big shifts. Oil prices stats remain high, they seem to be sustainably high, certainly as we foresee things. And this has some impact, obviously the higher oil price is great for our strategy, great for our business. But it seems there is more and more demand for oil, and this graph is here to demonstrate that its the effect of the capital consumption of oil, you see where it is for the OECD countries, the developed countries, and we see where it is for China and India. And these are going to be growing a nice growth and we see the signs of the growing -- they're growing at an enormous rate, so the capital consumptions must go up.

And if you just look at China and India's demand for fuel, I think we've mainly resulted as of something that 17 million barrels of oil extra for this year per day that the world has to find. 40% of the world's transportation -- of world's energy demand is for transportation fuels, and oil is the unsignificant contributor to transportation energy at this time. So, there must be other resources that come into play, and those of course we believe coal and gas, natural gas must play a significant role in supplying the world energy needs. We cannot prevent those developing countries from using more energy, what we need to do is of course make sure that they use it in a responsible way, and I'll come to that in a moment.

So, this shows coal reserves, the legend I am afraid is behind this animation. Coal is grey, red is gas, blue is oil, and we can see there why Lean, who is sitting out in the front has so many frequent flier miles because he is going to all of those places that have enormous gas and coal reserves that are importing oil. And what does that technology do? It takes those reserves and converts it into very high quality transportation fuel. So, you can understand this enormous interest that there is in it. Yes, it does take quite a while to get some of these big projects rolled out. That's no different from any other in this -- other player in the industry. Big projects take a little while, but the need is becoming more and more acute for us to play a role.

And what this does is it demonstrates that not only the growing shortage of crude oil, but it's the crude oil in the wrong places, if we can put it that way. You look at where the oil is, it's in nine countries, but those nine countries represent only 5% of GDP, 5% of the world population. But with coal, 80% of the world's coal is in six countries, but that represents 46% of GDP, and 45% of the world's population. So, you can understand why these countries that have the large reserves are so keen to convert their own reserves into energy that the economies so desperately need to grow. So, hence the opportunity for us, and we believe this is a great opportunity and it's a growing opportunity.

But of course moving on to the next slide, there are challenges, important here that we differentiate between gas-to-liquids and coal-to-liquids. Gas-to-liquids is fine. It produces a great product, very environmentally friendly. We are gaining premiums for them in Europe at the moment. The process of gas-to-liquids is fine. It does not have any emissions, in fact it is better than the crude refineries. And so we can give a tick as to gas-to-liquids as far as that's concern. Of course, we are improving that and the impact on the environment continuously as well, but that's not the issue.

The challenge is to deal with coal-to-liquid. Coal-to-liquid emits a fair amount of CO2, no question about that. It's something we acknowledge, it's something we are working very hard and I'm not going to draw into all of the stuffs that we are doing, but suffice to say we're committed to a reduction in greenhouse gas emissions as we see that today. We've already done some stuff in Sasolburg by bringing in natural gas to that facility. We had a world first in registering the stream development mechanism for nitro and we are working very hard in improving our energy efficiency, some symbolic things like converting this building to natural gas which is a better form of energy from an environmental perspective. There is some serious money that we are putting into Secunda to cut down on our [indiscernible] by generating our own electricity from waste gases. And then, I am sure we will have a chat about carbon capture and storage, capturing and sequestrating safely the carbon that's produced in our processes, particularly in the countries like China and United States, India where we are planning to do this project.

So, I think the bottom line is that we've really don't have all the answers on this one, but we acknowledge that we are taking it seriously. On alongside other coal users, we need to find solution. It's the balance between development and environmental impact. And that equation needs to be balanced by finding innovative technology solutions and we are working very hard on that with our R&D effort and within SSI -- SPI division, the whole team dedicated to looking for solutions here.

Another continuous challenge is around safety and the intervention that we've had in the last couple of years has yielded good results. We see how it's declining the recordable case rate, which is a very positive thing, and I must say with regret though, we still have fatalities. We had four fatalities during the course of last financial year, that's four too many, and completely unacceptable and we certainly won't rest until we have eliminated all of these fatalities.

Just to give you an indication now, you have to work as an individual for 137 years without any form of accidents, minor even accident to achieve an RCR of 0.3, which is our target, very tough target we've set ourselves there.

Another shift is this pressure on the cost and schedule of our large projects. This is a global challenge as we pointed out last time. There is a major shortage of capacity in engineering construction business. But I think the bottom line of this is that while we do have some slippages, we are doing well. Look at our 40 current projects in various stages of development; it's about 56 billion rand in value. We'd expect our slippages to be within this range. We will be 17 to 19% longer than our original estimate. That's very much in line with IPA benchmarks for projects being completed in 2007. We -- if we look at the same basket, we expect our cost to be 15% higher than our -- we originally estimated. By market I think you must be saving as we are going to continue, hear me okay.

Here, when we look at upstream large projects of the same nature of results, seeing a growth of 60% in cost between 2004 and 2006. So while it remains a challenge, we are getting our hands around it. We've taken some decisive action. If you look at 25%, some 400 extra people at Sasol Technology if you build up our own in-house capability, we revised our contracting strategy. We are working in close collaboration with a bunch of -- not a bunch, a couple of selected E&C contractors on how we can mitigate this challenge into the future. So, I personally feel a lot more comfortable that while it remains a challenge, we've taken the right steps.

Coupled to that is the overall shortage of skills, not only in this country but in our industry around the world. And here let me take you through the size of action. Look at few of those we have increased apprenticeships by 233%. We are putting 140 million rand extra into artisan training, over and above R&D. So we are doing something for the country as well here. It's a country-wide problem. We have our own division to recruit training and experienced people, large number of people, I mean 500 or so people that are in that division and particularly to offer support to our expansion plan. So it's some significant things we're doing and here again, while the challenge remain I believe we put our hands around it and this is not going to be the constraint reported, once might have been to our growth plans.

Now for the issue of sustainability, so is transformation. We are making great strides. We feel good about the contributions that what we are doing on a broad range of fronts. What good that is doing to the economy, to the communities, to our people in this country. Look at the some of the things we are doing. Our procurement spend has gone up 40% in a single year to 4.2 billion rand per annum. We continue to invest in skill development, as we have just mentioned and to our corporate social investment program. We've finalized a couple of big deals, liquid fuels, first phase of mining, second phase of mining, we will announce later this year. So, a lot is being done.

Well that's not all. Big one of course is the one we announced this morning. And this is the largest single broad-based ownership deal in this country to date. It's not a transfer of assets. This is transferring 10% of Sasol's shareholding at the limited level into the hands of direct people, largely ordinary South African citizens. What differentiates this deal is that it has a particular focus on the skills and capacity development, with new focus on women empowerment as part of that. But if we think about this, this is what this country needs, in fact the whole or couple of -- all of African needs this. On the one hand, we have a massive shortage of skilled people. On the other hand, we have just a large, larger unemployment problem. People are desperate to work, we need the skills, so it doesn't take rocket science to figure out what needs to be done.

We are failing society generally I think between ourselves and governments around, we need to do more collectively about skills and capacity building for the good of all of us. So, that's why we feel particularly good about the way we structured this deal, and we have structured it. By the way, we are going to select important while the creation of a fund, the Sasol Foundation, which will be there specifically to promote skills and capacity building, probably with some focus on science and technology. It's not just for Sasol though, of course we will benefit for it, but it's much broader concept. It's going to be looking of this from a South Africa Incorporated point of view. But we feel good about that.

We think this is the right way to structure a deal. Millions of ordinary South Africans are going to benefit. We have four categories. The first category is 40% of the deal is going to go into the hands of our employee, 30% into black public and those are the ordinary South Africans from Kosovo in the south to the Eastern [indiscernible]. But that would not normally have participated in the deal like this. We are structuring it in a way that they can participate and we are going to go to great lengths to ensure that they do in fact participate with this.

So that's 40 plus 30, another 15% will go into selective partners and we have a deal. We will select partners that will either have something to do with our value chain, suppliers, customers, union, investment, companies. But also people that have something to offer in terms of skills and capacity development to fit into the overall theme of this transaction. And the remaining 15%, which is well other, if you take 15% of 18 billion, which is the size of this deal, the 285 rand share price, 15% of that goes into the Sasol Foundation. It's a significant amount of money that we're committing to make any difference to our communities.

Christine will chat about it a little bit more later, but the deal will be at market value. I've been asked several times a day, at what discount do we offer the shares. We've no discount for the shares. The value that we bring is the facilitation to make sure the funding is provided for people to participate. We believe there is absolutely no doubt that this will be in our shareholders' long-term interest. Christine will take you through some of the financial implications, but this is a deal that's very much inline with market norms in terms of facilitation. And deals like this, help the economy growth, no question about it. The more the economy grows, and it's a striving economy, the more demand there will be for our products, we much rather sell those products into this economy than export them to China, India and other parts of the world. So, this deal no doubt is good for us, it's good for the country.

Moving towards the end of this particular part of the presentation, before I hand over to Christine, the strategy of course is not to deliver results and this is just one slide that shows you, it has been delivering results. If you look at how we do against our cost of capital use, we've exceeded it consistently through high oil, low oil, high chemical prices, low chemical prices, wild fluctuations of the currency, consistently it beaten our cost of capital. At the same time, our earnings have grown rapidly as you can see from that slide up there. And at the same time, we've been able to do this like and keep the strong balance sheet with funds which provides one of the foundations for our future growth.

This I am going to end there, this is the last one, with a longer term view of our financials. Christine, is going to now particularly focus on the short-term, those record results, and give you more detailed list. Thanks Christine.

Kandimathie Christine Ramon - Chief Financial Officer

Good afternoon everyone. It's my pleasure to be here with you today to share our good news with you. As Pat has just shown, we've seen pleasing earnings growth, strong cash flow and a delivery on our financial targets. This has enabled us to sustain our economic performance, and grow our dividends, thereby building value for our shareholders.

Before we go into the financial year '07 results, we see here that our main profit drivers have being favorable for the year. There has been an increase in the average oil price, the rand/dollar exchange rate has weakened by 12% over the past financial year, and we've seen increases in chemical prices, 16% in polymers and 12% in solvents, and this was reflected in our results for the year.

We see that operating profit has increased by 49% for the year, and as Pat pointed out, our comparable result excluding M&A is an 18% increase on the prior year. Over the past four years, our compound annual growth rates have increased by 41%, which is quite a remarkable achievement.

Our operating profit did benefit from the increase in the average oil price, as I mentioned and the weakening in the rand/dollar exchange rates. However, it was negatively impacted by the two plant maintenance shutdowns at Synfuels. The lower volumes at Synfuels did have a negative impact on the rest of the businesses in the Group.

We saw great growth in headline earnings, with headline earnings increasing by 10% on a per share basis on the prior year. Attributable earnings increased by 63% on official basis, and as you can see there, there were quite large adjustments for capital items; the biggest effect was really the delta on the prior year of 5.1 billion rand. That's really resulted due to the reversal of the O&S write down. There was 3.2 billion write down in the previous year, and in the current year you saw a reversal of 830 million rand and that was really the biggest part of the swing that came through on our capital items.

We also saw in the current year making up the 1.2 billion rand through the net profit realized on the disposal of 25% of Sasol Oil, and 25% of the Republic of Mozambique Gas Pipeline Company coming through on our results. We saw a 19% increase in cash fixed costs for the year, and had we excluded the effect of the shutdown in the once-off costs, which was shown in the blocks actually, we see that our increase in cash fixed costs has been in line with inflationary levels.

In terms of cost associated with our growth initiatives, it's important to note that as we have employed an additional 400 staff in Sas Tech, SPI and SSI, and this is to sustain our growth going forward. We also noted the investment in study costs of 203 million rand in the current year, and this is our investment in growth going forward. It's important to note that these costs will be carried forward into the next year and into the future.

Now here with the SA Energy Cluster, before dealing with the International Energy Cluster and the Chemical Cluster. The SA Energy Cluster contributed 85% to our Group operating profit and they will show that our existing business is delivering on growth. We saw a steady contribution from our mining business despite lower production volume. Volumes in mining were down by 6% to 43 million tons. This had an impact on the cost of the ton sold which increased by 17% on the prior year, and the biggest impact on that increase was related to inflationary costs and the effect of the labor strike that was experienced at mining during the financial year.

It's glad to see how our Gas business is growing, with an increase in operating profit of 27% on the prior year. Operating margins in gas increased to 52% on the back of increased volumes and higher sales process.

Now dealing with our Synfuels business, which contributes almost two-thirds of our total Group operating profits. Synfuels benefited us from higher product process, and the weaker rand resulting in our operating profits being up 20% on last year. As mentioned earlier, Synfuels was impacted by the plant maintenance shutdown, which was also being volumes being, production volumes being down by 2.8% on last year, and this cost the business 1.4 billion rand. The cash unit production costs were up by 22%, and if you take the impact of the shutdown and the inflationary impact; that contributed 15% points to the 22% increase.

It's important to note that the growth plans contributed 4% percentage points of the 22% increase, and that relates to the increase in the Synfuels production capacity by 20% over the next 10 years, and of which, 15% of that growth -- of which 15% of that will be on natural gas.

Moving on to oil, we see that oil maintained its operating profits despite the increased level of import. In order to meet our energy security demand and our customer requirements, we did increase our level of imported petrol, fuel, and diesel components during the year.

Our International Energy Cluster reflects investment in growth. We see increased exploration activity at SPI. And if we look at operating profits before exploration costs, it reflects an increase of 14% on last year. That was under back of increased natural gas production in Mozambique. In the next financial year, we do expect a significant decline in operating costs in SPI. We saw increased project development activity at SSI, and this mainly relates to increased costs incurred to develop our GTL and CTL growth opportunities in Australia, China, the USA and India. Although this had has an impact in terms of operating cost, either Pat will deal with the progress made in Oryx later in the presentation.

The Chemicals Cluster has done very well, despite the impact of the Synfuels shutdown and the higher oil-related feedstock cost, we saw polymers turnaround in the second half with operating profit up 32% on last year. Although production was down 4%, polymers realized higher margins over the financial year. Solvents benefited from strong product prices which negated the impact of lower volumes that came through from the Synfuels shutdown.

We made an announcement earlier this year relating to terminating the divestiture proceeds of the O&S business, and this was the result of that the offers that we received did not capture fair value for the business. We also announced in June this year that a turnaround process was in progress and as part of the first phase of that turnaround, we shutdown or we took a decision to shutdown the unprofitable production facility in Baltimore, in the USA and in Porte Torres in Italy. The restructuring costs relating to the shutdown of those production facilities amounted to 406 million rand in the current year. We are examining four options to harness full value for shareholders, and we do expect improved business performance to be restricted or to be delivered in this business over the next three to five years.

We saw excellent results from Wax and Nitro, Wax almost doubled or more than doubled its operating profit as you can see there by 128%, and this was on the back of improved margins experienced in the business. Nitro's operating profit increased by 31%, due to the growth in the explosive business and a recovery in the SA fertilizer market.

So, we've seen strong cash flows that have been used to fund capital expenditure and to return cash to shareholders. Our cash generated from operating activities increased by 16% on last year. We spent 12 billion rand in the current year on capital projects, of which 54% was invested in South Africa. During the year, we also reactivated our share buyback program, and to date have bought back 2.4% of our issued share capital. Pat also pointed out earlier that our total dividend was up by 27% on last year, and this translates into a 3 time dividend cover, which is inline with our dividend policy.

It's interesting to note that our compound annual growth rate over four-year period reflects a 26% growth, which is quite impressive.

So here we see that our key financial ratios are improving, which indicates that we have a strong balance sheet for sustainable growth. We see that our operating margin has increased to 26%. Our gearing is reduced to 22%. However, we do expect to move to the -- into the -- in our target gearing range of 30 to 50% within the short term, taking into account our impending BEE transaction, our growth plans and our forecast capital expenditure.

So moving away from the financial results for this year, I will now deal with the proposed -- the financially effects of the proposed 10% BEE transaction. We can see that it's a very large deal at about 18 billion rand and that is based on the share price of 285 rand per share. The full value of this transaction will be determined when we finalize the terms of it, and that will be done at market value. Our intention is to fund this deal by a combination of equity, third party funding and Sasol facilitation and this is in line with the market needs. The third party financing arrangements still need to be put in place and our intention would be to externalize as much of their fleet as possible, however that will depend on market capacity.

This transaction will restructure our balance sheet, as our surplus cash will be used to repurchase shares up to 10% of our issued share capital, and this is in order to mitigate dilutionary fixed charged shareholders. The pro forma financial effects that have been published this morning are purely illustrative and has been based on the results for the financial year '07, and includes several assumptions, including share price assumptions, financing assumptions and process related thereto.

It's important to point out however that including the additional share buyback and excluding the IFRS2 charge, which is a non-cash cost, the transaction would be enhancing our earnings per share. We are also exploring support from the National Empowerment Fund to facilitate the broad-based public offer. I am sure you would appreciate that the transaction is working progress and that this is a first term's announcement. We do expect to announce the final term of this transaction in the first half of 2008, after which shareholder approval will be sought.

For now, the moment that you all have been waiting for, the profit outlook for 2008. And this is being based on the assumption of lower margins and prices that are expected in 2008. In terms of currency, we expect the rand/dollar to average at about 7.25 rand for the year, the Brent crude oil price average to be in the mid 60s. We are expecting our dollar refining margins to drop and most chemical prices and margins we are expecting that to soften in the 2008 financial year.

In terms of costs, our focus in on controlling our cash cost per unit of production for 2008, and going forward. However, it's important to note that this will be done in a sustainable manner, cognizant of safety and the efficiency of our production facilities.

I mentioned earlier that we need to start taking note going forward, there will be increased cost associated with our growth program. So, taking all of the above into account, we do expect 2008 earnings and this is on an attributable basis; to be in line with that of 2007. And that is before taking the effects of the proposed empowerment equity transactions into account.

So in conclusion, we see that most of our existing businesses have delivered record profits. We are investing for future growth and we do expect to see delivery on the bottom line. Thank you for your attention and for sharing this good news with me. I will now hand over to Pat, who will deal with our growth strategy.

Lawrence Patrick Adrian Davies - Chief Executive

Okay. Thanks very much. As we've seen a great foundation from which to grow the company. I am not going to talk the great detail about projects, but suffice to say that these projects are constantly taking us forward to those growth goals and growth targets that we have.

Some biggest capacity coming on line as we wrap up on a couple of large projects, Project Turbo, been with us for a while now, really happy to report that the catalytic cracker works, the chemistry works, it produces products which are on spec, no concerns about the technology doesn't work. However, there are a couple of reliability problems and a refractory issue that is wearing away too quickly. So it's offline again at the moment. It will be back on again hopefully fairly soon, certainly into next month. We may have to do further modifications to improve its online availability, but the good news is the kit works and that is a relief obviously to all of us.

Arya is doing very well. Arya has started up the cracker, a million ton cracker, an enormous plant, successfully. We even were given a prize by the host government for the best petrochemical project in that country. And that kit plant, the development plant on track as promised to startup the most beneficial operation in the first quarter of calendar '08. The Octene 3 start-up expected this quarter 2008. So, those are looking good. They are making to add a tremendous amount of additional volume into our performance in the next couple of years.

Although into the future, EGTL, the Nigerian gas-to-liquid project is under construction, modules being built all over the world, getting ready to come to site now. So, that's going ahead. We expect the construction would be complete at the end of 2009, beneficial operation is going to be into 2010. And I guess if we are realistic about -- it's just kind of hard to predict that far into the future, particularly in a country like Nigeria. But we are happy with the economics, nothing that's happened so far as is bending the economics on that project the way it's structured. This relatively high risk, which also relatively high returns.

We are delighted leading onto this with the progress that we are making, Benny and his team in Sasol Technology, in growing the Synfuels capacity by 20% on gas from most of Mozambique as Christine said, most of that from gas from Mozambique. Very excited about what Fay and the team are finding in the way of extra gas in Mozambique, so this is a success story. We've seen how that business is growing and is continuing to grow rapidly for us.

And then of course Project Mafutha, is the big one for us since it become contradiction been is to what Mafutha actually means, that I believe it means both big and it means oil. So, if we produce 80,000 barrels a day that's the target that we have. We are delighted that we're working in partnership with government on this one, 50-50 joint venture is what we are targeting here, and it will really make a difference for this country.

We in South Africa also have an energy security issue that's developing; we need to make sure that we've enough production capacity to supply the needs of all our customers in the next couple of years. This project that can do with massive economic benefits to our communities, to our people, through the balance of payments, through the number of jobs that we created. It's only agent [ph] that this seems to me the right win-win between Sasol, government and anybody else who is involved in it, more of that in the future.

Some of you maybe wondering by now what is earth has happened to Oryx as we've forgotten about it, that's not even on the slide. But we need to -- we really got two slides on Oryx, just make sure you collect them a couple of your prints. Specifically was the problem what we disclosed in May. We said that some of the hard wave is producing too much fine material. As we have often referred to as a catalyst breakup, the catalyst doesn't broken up, but the reaction of this plate was too much power likely to is coming through the product, and the pull though downstream of the reactor couldn't cope with all of it.

Well, you can see the progress that we've made since January through to where we are today. This is how that fine material in the product coming out of the reactor has declined; we're just about at our design range. So this problem is largely behind us. We were putting some extra tip to make sure that we can run at the high loads we want through and to make sure we have the reliability, but I'm happy to report this progress. But if I can pause for a moment and talk a little bit about the track keys [ph] the culture of Sasol if you like.

Now its sometimes things how engineers create problems like this so that they have real challenge to solve. We have over 100 Ph. Ds, engineers, fraction scientist and they love problems like this. We focus on problems like this to fix them. It's happened throughout our history. Think about it very grateful at Sasol. Sasol is the company that produces leading edge technology. We all enjoy -- in a word, as we get being ahead with the guy in terms of technology progression. But there is some risk associated with that, some plants that cutting edge becomes the bleeding edge and sometimes it's in the public eye, has always has been in the public eye. But significance here is we fix the problem. As soon as we fix this one we will fix the other remaining problems that we have, or we can have a couple of those, but I would categorize those as more into the realm of normal shorter spotter types of problem.

What does this mean? It means the ramp up is continuing. In October, next month we will be running both trains in parallel, which is something we've not done to-date. Obviously, the production rate goes up as a result of that. We will spend some money, we can spend about 50 million U. S. on making sure that fine problem doesn't crop up, which we can treat it downstream reactor. There are a couple of other things that we are going to be doing. We probably need to point out as well, just we don't get into trouble with all of you, in February that there is going to be a shutdown not because of the plant but because of the gas supply, there is some work that needs to be done.

So, what else can we say? It's continuing to operating profits already small, but it's making a contribution to our operating profit in this unit, quite significant for a project of this size. We are absolutely confident that Oryx is going to be the showcase of our technology internationally as we see that would be. Now this is going to demonstrate to the world that this technology doesn't only work in South Africa by some basic [ph] stuff, but it works on natural gas and it does it at scale, it's a commercial success. So, our profit was also fairly muted on the subject of the target as we are writing for us to get up for the production rates. And I am sure they are going to join with us continuing the prices of this technology, and not to reduce the perception of risk with the new technology opposite some other competitive technology such as LNG that are in the minds of people. So they are good story, yes, and more good news to come as we tick off a couple of the other problem.

I am sure we have questions on other projects, and Christine and Tom will be happy to deal with them then, but I am not going to dive into the detail now. Just look at the CapEx spend in the next couple of years at an aggregated level, and it speaks again through the key things, although I've mentioned we would be talking about this. If we look at that, it's 65 billion in the next three years. I think we need to point out, and when we talk about building, we are talking about the foundation. We have growth projects here in blue, but you can see a substantial amount, about 44% or so of the CapEx spent is going to be there to enable and sustain. This is making sure reducing sustainability that we look after our existing assets that we meet the requirements in terms of sustainability environmental impact and so on.

Nevertheless, there is substantial proportion on growth as we see. I think the second important point to note here is we look at the one on the left hand side is that it's not just into the exciting places around the world that our investment money is going. But very substantial proportion, in fact 50% of our CapEx has been planned, is going to the South African -- Southern African Energy Cluster including Mozambique. So, it's not just overseas that we are growing, we like to invest into this economy, it's doing well for us. It's in the record results that we produced and we are continuing to do that. And I think that this is the fact that is not too well appreciated by some of our observers. We tend to sponsor most of our questions around gas-to-liquid and coal-to-liquid and should not forget about the platform and the growth opportunities that those foundation provides us.

I mean the last point I make is that only 2 billion of the 56 has reached the approval stage. For those who might be concerned being again flushed around a lot of money that's not accurate, but only a portion of the balance comes to fruition, that's a fantastic growth opportunity that will be provided for us there. And this one being -- this is not just focused on energies, focused on growing our chemicals business, and focused on growing our upstream and oil and gas business as well.

Good, changing gear for a moment, I'd like to talk about volumes for new Sasol. It sounds a little track [ph], but we sincerely mean that we need to grow a Sasol at even better at performing that further raises our gain. It is important to Sasol that also and even more of a half and mere more of the full, we want to not only do the right things. We want to do them in the right place as responsible values driven organization. And we have a bunch of corporate leaders that we believe only at the moment to use that terminology, talent management is a very important one as we grow, we need to grow our people alongside the organization.

We are blessed in this organization with the really good people. We have a great depth of our leadership skills and abilities. Obviously that must grow. We have a lot of action in place under the guidance of Nolitha that is pushing us forward in this area.

Value-driven leadership. We need a common case of value obviously to bind this organization, as we become more diverse, diversible over the world. In our Oryx facility we have 22 nationalities working on the same site. You can't do that unless you have a common set of values to bind the organization together. And then nothing there values that are just up from our role and that is beyond and is up from the role here. They must be levered. And this is also about focusing on people and performance. It's focusing on health and performance, sustainability and short-term performance of the organization. So it's not just so much about what we do. It's also how we do that. That's a little bit more new to be now break sometimes publicly more engagement for society, more engagement to that cycle, if I can jump to that one. Hopefully you are starting to see the impact of some of that, the way we are dealing with some of the big day issues. That's a change in culture, a change in the core values that we would like to live out. I think one would have a culture, but it needs the adaptation to the new environment that we found ourselves in. Now people are ready for this, they support it.

Operations excellence, we can do better on stability and reliability of operations. So we had a great initiative using best practice from all over world. We are using ABB to help us control things in this regard, to drive better availability, reliability and efficiency in operations. There is clearly a value to be projected here. It'll also help good growth that Christine referred to and this is another driver about through out the organization both into performance contract of all of our leaders and what are they doing about producing cash fixed. So now it will be rewarded to other lines on how they perform.

Again with international based practice, we are looking at how we can reduce our corporate overheads, in fact our overheads throughout the organization. It determines the value to be extracted there as well. Well, let me not dwell on it too longer but I just wanted to assure you we have the intent to drive down our cash expense without of course as Christine said that without harming our business.

Sustainability, the world has changed as far as this is concerned and we have acknowledged this as I've said earlier, recognize this and we are doing something about reducing our carbon footprints like all the relations we have covered. And moving onto my second last slide, which is one which I started with. We are gradually growth drivers. We have spoken about our existing asset base, this foundation for growth looking off to that and growing it. It's a growth base producing record results. We've spoken about these two which is to do the sustainability transformation and the progress that we are making there. We've also spoken about empowering and developing our people more and more.

And in the last one of course, this is the great opportunity. This is what sets Sasol apart. There is no other oil and gas company that have the value proposition in this area that we do, not only is this producing gas-to-liquid volumes of the right that we are, not only doing coal-to-liquid as told [ph] many are starting and many are talking about it but no one is actually doing it from coal all the way to gas, all the way to the final product. This is not happening. So we have a unique position there and how opportunity lies in the confluence of on the one hand the world is running out of energy particularly transportation energy. The world that has large reserves of coal and gas that can be converted into that energy, and our technology that does just that.

Yeah, it takes a while to roll out, but the need as I said earlier, the world has its growing and hence we have this enormous interest in that. And this now convert into a great growth opportunity for us. Earlier this underpinned, this slide is being transposed was underpinned because it used to be on the bottom, underpins our core value that binds this organization together.

So my very last slide, this slide really is not being the same row with this, three messages. The first message is that the existing business is a great business. It's producing excellent results year-on-year, transferring the steps not always fully understood. Second message is that we have a huge opportunity for growth because of our technology and the position that we find ourselves. And the third message is just as the important that the way we do this and we are working incredibly hard to make sure that both our existing businesses and our growth businesses are going to be sustainable into the long-term, as we do all the right things as a responsible, caring corporate would do. We have no doubts that all our stakeholders are going to grow as a result of this, we particularly see that our shareholders are going to benefit in the longer term. Thank you. Happy to take...

Question And Answer

Operator

[Operator Instructions]. Thank you very much.

Lawrence Patrick Adrian Davies - Chief Executive

The question is from there, so okay, Jonathan?

Jonathan Kennedy-Good - Deutsche Securities

I have just -- Jonathan Kennedy-Good here from Deutsche. Just very briefly you talk about your technological advantage, and looking at your guidance on CapEx or so does appear as if the CapEx spend is very directed towards the South African business for obvious reasons. But would you consider acquiring or moving into the upstream more aggressively to roll out expansion plans abroad, outside of your Sasol ship on JV? That's the first question. And then secondly, do you have an estimate for us on further cost of carbon caption storage in South Africa, I mean I will ask you the third in a bit?

Lawrence Patrick Adrian Davies - Chief Executive

Sure. Thanks Jonathan. Lean, you can perhaps help with the first one, but me start. Ours is an organic growth strategy largely, but it certainly doesn't rule out making acquisitions in the upstream sector and this doesn't test will share from joint venture doesn't really come into play because we already have an upstream business which predated the joint venture. So yes that is an option to us. Lean, would you like to comment further on it?

Giullean Johann Strauss - General Manager

No I think that first we are exploring such opportunities.

Lawrence Patrick Adrian Davies - Chief Executive

Great. I left your second question, apologies on that.

Jonathan Kennedy-Good - Deutsche Securities

On the carbon capture and storage cost for South Africa?

Lawrence Patrick Adrian Davies - Chief Executive

No, I didn't really talk about it too much now, but this is a global problem. Coal carbon capture and storage is something that all coal users are resting with this at the moment. So there is enormous amount of efforts that we are putting into it but so are many other people, so difficult to indicate that I can -- we can give them feeling for something after 4 billion rand spend in the environmental projects that would include improving energy efficiency and strong incentive over the next number of years just to give you a flavor, probably lack on give you an absolute figure in terms of cost increases. Please call it as you wish [ph]. Now one from Keld, next to Jonathan.

Keld Rasmussen - Avior Research

Keld Rasmussen from Avior Research. Can you comment on how happy you are with the relationship with Chevron in Sasol Chevron, particularly in terms of their delivery on the partnerships delivery of new GTL project, just in that context, I saw on their website, last press announcement was 18 months ago?

Lawrence Patrick Adrian Davies - Chief Executive

Keld, yeah. This is a difficult question; I am going to ask Lean to answer. No, I am joking. Overall we are happy with relationship with Chevron. We think they are a great company absolutely and we have an enormous benefit from them on intellectual property matters, on helping develop the technology. They have helped us, we have helped them. They have helped us with the global reach and we can't call ourselves a global company yet. We are an international company and a lot of expertise from strategies to HR that they helped us enormously. And of course the benefit that we had out of that relationship is first of all, a much greater position in EGTL, which is useful to us. We also have very good positions in the oil exploration sector in Nigeria because of that relationship. Frankly, so as the rest of the world it has been a little disappointing. We would have like to see more opportunities brought our way through the Chevron partner. As you know, we are working in Australia, that's one where they all coming in to the party and that we would have like to see more and I think they would probably agree with my comments. So, we would have like to brought more to. Lean, do you want to add to that?

Lawrence Patrick Adrian Davies - Chief Executive

It was Chevron and setup.

Caroline Learmonth - Macquarie First South

Caroline Learmonth Macquarie First South. Three questions, the first one is on the BEE transaction. Is there a particular reason why the non-South African businesses were included within that overall transaction? And secondly on cost, you've mentioned a number of times a strong focus on reducing cost. What specifically will you be doing on that point and do you have target as to cost reduction? And then thirdly, on project delivery and perhaps going back to your slide where you talked about the 65 billion rands of CapEx planned over the next three years, and then just bearing in mind what you've explained on natural or rather average delays in projects. Do you factor that in certainly when you are talking about targets?

Lawrence Patrick Adrian Davies - Chief Executive

Yes. Okay, I think I've got them all, and I think my colleagues joining, I think the run on BEE, the fairly easy to answer. Obviously the deal has been done in such a limited wavelength such a limited encompasses all our businesses at local and offshore. Yes, we could have come up with some footwork to structure the deal differently that we don't think that's appropriate. I think South Africa -- Sasol is a South African company. We have our roots here. We have been born here. This technology was developed by South Africans. I think they are finding it appropriate with the whole of our population shares in the upside of Sasol including the offshore part of Sasol. And obviously government, this has been discussed with governments, and they are happy with this fact and obviously we call it, lack of the deal which I believe they do and this is a win-win situation for us.

On costs here, yeah, costs are always a challenge in the business like ours. And to be honest, we have come through a period of high oil prices. So, it's hard to be squeezed on costs. But we have -- certainly we do have targets. We have targets in the performance contract of all of these manages 15 year and even to their ramp down to supervisor level. I don't particularly want to disclose overall targets for the company, those are truly difficult to do. But certainly, we want to live within the inflation type of figures in terms of cost increases. We want to be better than inflation cost increases in the future. We do have to be a realistic there. In the past, over study money and feasibility study, pre-feasibility study, and the extra people associated with that, we would have capitalized into growth projects. Because of the accounting standard that we now have to expense all of that. So, that -- I think we need to take that out of the equation because we can't strangle the existing business, because we have to spend money on cost to grow the company. So taking that out of it, we want to beat inflation. And we have got a bunch of programs throughout the company to try and do just that.

The last one on the project delivery, looking around for hundred of pharmacies [ph], to run plastic, but of course we are running O&S at the moment and yes we do capitalize and obviously they weren't factored in a couple of years ago, but they are now factoring in, and they are also being factored in now. We've also changed the whole estimating process, so that we cannot be more realistic estimate for our capital project, and our Board certainly asked us a first questions before any capital is approved. Thanks Kevin.

Unidentified Company Representative

And I apologize, and operator could we take questions from the conference call?

Operator

Yes sir. Our first question comes from Theepan Jothilingam with Morgan Stanley. Please go ahead.

Theepan Jothilingam - Morgan Stanley

Hi. Good afternoon. I have three questions. Just firstly on Oryx detail. Could you just give us a little bit more detail in terms of what rates you are currently running at and what rates do you hope to expect once you have the base trend up and running? I just wanted sort of clarity on you mentioned a couple of smaller issues with Oryx, could you give more details there? And the second question I had with just on your earnings guidance for 2008. I just wanted to understand what assumption do you have put in for maintenance, particularly on Synfuels business and on cost inflation? And thirdly, just you touched on sort of the potential for great projects internationally. I was just wondering if you could give us an update on perhaps your negotiations in terms of a Chinese project or where you think you are most advanced in terms of international expansion. Thank you.

Lawrence Patrick Adrian Davies - Chief Executive

Thanks very much. And I am going to ask Lean to start, perhaps he can pick up the first one and take the third one there, if you could. Thank you.

Giullean Johann Strauss - General Manager

Yes. Thank you. You had a question on Oryx GTL what rates would come. When we made the first announcement in May, I've skewed to you that we are going to run one train at a time between 7,000 to 10,000 barrels a day. Up till now we continue to running only one train at a time, but we've achieved production up to 12,000 barrels a day. As for on October we planned to run two trains in parallel, and we do not always do this on line all the time, so there will be an intermediate periods where we will be keep running one train while we do some modifications and doing some space runs [ph]. But the periods for which we would run the trains together, we are looking at around 18,000 barrels a day.

As far as the other question is concerned and now we are making progress and each projects are progressing fast. The base there -- the module makes the most progress is in China. We started that some time ago and as I have mentioned last time we signed those feasibility studies, so we will do a range of that [ph] last year. We are still progressing those feasibility studies and we are making progress and as I have explained last time we have to do some of our negotiations upfront, and we have to get those commissions orders in place. But my team and others was just exactly within retail [ph]. We are still making good progress and we are still very positive about the outcome of the Chinese projects.

Unidentified Company Representative

Lean, if I could just build on a guidance that you have given in the terms of Oryx, the 18,000 barrels a day. That's not the permanent outcome and we are putting in new hardware as we go along which we will -- and we are continuously improving. So that is more in a near term. Longer stream better than that, but we have not discussed any numbers on that just yet.

Unidentified Company Representative

Yes. I mean the key still coming in as with the filtration capacity during next year and that will take us to up to the total design capacity.

Lawrence Patrick Adrian Davies - Chief Executive

There was a question and Benny between you and Christine you can handle that.

Anthony Madimetja Mokaba - Executive Director of Energy Businesses in South Africa

On cost inflation, I think that is important when you look at the crude oil cost to look at two sides. You look at your variable costs on the one side and see the interest as you mentioned that you actually have the shareholder pickup that delivers on the gas side as well as on the coal side. So whatever you have lost in terms of costing, the cost of the feedstock, you pick it up on the other side. On the [indiscernible] cost side. I think it is important also to realize on that region the equations of the cost of study. Growth causes a bit of money, in case if you take out the growth there, the growth initiative, the cost that comes as part of the growth initiatives, the initiatives that we actually have been growing as continue to take it as Christine indicated, pretty much within inflation.

Looking forward, we have three choices. To try to capture the growth and therefore spending a little bit of money or not to do so not, and I think to be full hard enough to do so. However, we have actually focused now more on the structural cost reduction in Synfuels. We put together a project. I think Pat you are right, we cannot mention all the details around it which takes into account all the structural related kind of costs. Those have to do with the questions of the structure of the levels of management all different portions, locations to be case of stock. Those things are more structural when you are looking at them. It will take us a little bit of time. That was the great out there, and I think as investor if you look at the choices we have to make, we have two choices during the year. To run the key that hard as possible given the fact whether the channel likes to take, it was running, the margins were good, we have to run the key as harder we can. And in doing so, we had a little bit of higher cost. That is future -- looking into the future there is good margins out there. Therefore, we asked for to try to capture those margins by putting a little bit of more growth cost is more of a necessity, and certainly cost are the key focus for the management in Synfuels.

Lawrence Patrick Adrian Davies - Chief Executive

Good. Thanks Benny.

Anthony Madimetja Mokaba - Executive Director of Energy Businesses in South Africa

Thank you.

Lawrence Patrick Adrian Davies - Chief Executive

Finally, if you have your hand up there. You must be getting so honest here.

Unidentified Company Representative

Operator, next question?

Operator

Yes, sir. Our next question comes from James Twyman with UBS. Please go ahead.

James Twyman - UBS

Yes, hi there. I have a two questions. And the first one is could you give us an indication of what exploration costs are likely to be this coming year in SPI? I think you mentioned that it will be lower than this current year. And secondly, once you have the filtration equipment in place, do you think that you can reach the 34,000 barrels a day of capacity and will you be able to achieve that relatively soon or after the filter equipment is in place?

Lawrence Patrick Adrian Davies - Chief Executive

Lean, do you have a microphone Lean? Thanks James. Lean will answer.

Giullean Johann Strauss - General Manager

Yes we plan to drill about another two new wells in the next financial year in Mozambique. I haven't got the exact cost for the exploration. It's some of the final contractors to come but it would probably the region be of us what it was to us this year. It's a very constructive to stop all our technical problems at audits and once we had got our filtration equipment, we plan to ramp up the design capacity fairly quickly.

James Twyman - UBS

Okay. Thanks you.

Lawrence Patrick Adrian Davies - Chief Executive

But, now I am going to overrule now, Gerhard must have a chance, Kevin.

Gerhard Engelbrecht - Citigroup

Thank you, Pat. Gerhard Engelbrecht with Citigroup. Three questions if I may and I'll fire them just one at a time, if that's okay. How do you see the successful start up of Turbo impact the England market fundamentals in the next couple of years and are you confident that there is sufficient distribution capacity to ensure that the England area remains supplied of petrol and diesel?

Lawrence Patrick Adrian Davies - Chief Executive

Gerhard, we look ready as now let's have a correct of that one shall we, we will start up with fuel. We are not going to make more fuel available for England market and in fact make a list because of the shrinkage. So the problems, the impending problem on the shortage to supply, it needs to be addressed by Synfuels running across all the camps as well as natural. And then of course the logistics of getting supply of fuel from the costal regions. So we are giving this our very serious attention at the moment also the logistic supply chain from Durban all the way into the region now. So there are couple of things that we are doing there. So Benny, I don't know what you want to say in terms of how you -- comfortable you feel about this? I think its going to be reasonably tight, but glad you are going to make sure that the country doesn't run dry?

Anthony Madimetja Mokaba - Executive Director of Energy Businesses in South Africa

Yeah. I think Pat you are right. It's going to be very tight. As long as the economy growth is stable is growth, the demand for fuel keeps on growing. So almost all of us in the projections of how the volumes are going to be met have been slightly wrong. So however, as the company we have been looking at total options so it's glad to mitigate that logistics challenge ahead.

Gerhard Engelbrecht - Citigroup

Okay. And just secondly, can you give us a little bit of up guidance on the outlook for '08, its now that its back in the fall. Quick analysis of mine suggests that volumes and prices look quite flat in the last year and yet the higher feedstock prices, the margins were almost the same. So you have taken a lot of cost out of the business. What are your plans now with the closures in Italy and the U. S. what are your targets, what can we expect of this business in the next couple of years?

Lawrence Patrick Adrian Davies - Chief Executive

We are not going to be too precise besides on targets. So we can give you some directional comments and then Dr. Johannes Albertus [ph] will do that but I think we can say that closing of the plants expecting some of the over capacity in the LAB business particularly other than the equations and that's allowed us to be a little bit more aggressive now than our proceeds in to that areas. Johannes [ph] would like to build on it?

Unidentified Company Representative

Thank you, Pat and thanks for the question. After the announcement to retain O&S basically the first phase was characterized by some early and fast decisions. The shutdown of the two plants, as indicated by Pat and by Christine but also to shutdown of the Wurttemberg head office. Those opportunities were already identified during the divestiture phase and they were basically quicker and slow hanging fruits. The second phase now is characterized by more homework, where we investigate all options that fall into the arena of restructuring. It's obviously cost cutting and your observation is very right that cost were pretty much under control already. But we see further opportunities there as well. But it includes working capital, it includes variable costs, and it includes margin management.

So the second phase is less visible, but there are a lot of actions, lot of investigations taking in-house, and we expect that beginning of the next calendar year, we will go back to a more visible phase, where you will see some of the actions, and we will send also make the appropriate announcement in terms of sales. We are positive and Pat has already indicated that we also see some first positive signs in the marketplace. We do believe that especially in the LAB business, we may have reached the bottom of the cycle and we are investigating the sales opportunities as going forward.

Lawrence Patrick Adrian Davies - Chief Executive

Thanks you Johnnes.

Gerhard Engelbrecht - Citigroup

Thank you very much.

Lawrence Patrick Adrian Davies - Chief Executive

We will always be with you. Yes, Gerhard, please go ahead.

Gerhard Engelbrecht - Citigroup

Lastly if I may, given those interesting guidance with regards to possible, and probable projects. I don't see, can you give us a little bit of indications of the Chinese and U. S. and CTO and in Africa as well. I mean where we do fit in with regards to the possible and the probable projects?

Lawrence Patrick Adrian Davies - Chief Executive

Well, Giullean, can you help me out. I think these are probably can't specified as possible project at this point in time. I don't think there maybe hurdling into probable but I stand to be corrected on that categorization, we are at the same rate.

Unidentified Company Representative

Yeah.

Lawrence Patrick Adrian Davies - Chief Executive

Okay. Now that's good and project Nefruto [ph] don't even make that category. That's not even in the numbers that you have point that out to you.

Gerhard Engelbrecht - Citigroup

Great. Thank you.

Unidentified Company Representative

Any other questions from the floor? Operator? There is one more.

Unidentified Analyst

Peter [ph] from [indiscernible]. The earnings guidance of -- when planning earnings that pertain to headline earnings per share attributable earnings against what base that came from?

Kandimathie Christine Ramon - Chief Financial Officer

Yeah. The earnings guidance that pertains to attributable earnings. So we picked our attributable earning for '08 to be inline with that of 2007.

Unidentified Analyst

And then just one follow-up question. The economics in returns in the full turns is been a lot of commentary and different views on the feasibility. Is there anything you can add to space, I mean always you have skewed out but do you feel that there is economically viable and technology and what's required to make it?

Unidentified Company Representative

Sustain of oil price is one of the key factors that lacking at we are looking into the future. Based on relatively conservative assumptions around oil, we believe there is a project there. It doesn't require extraordinary things. It doesn't of course require the kind of investment framework that other than this industry that other industries require, not only the South Africa provides, but other countries provides. So, it will require the absolute tax incentive of absolute infrastructure and that type of things. But if the oil price holds up, its like a very good project for us, very large and we are a long way from making any goals on it yet, but it looks conservative. But we have questions on there?

Unidentified Company Representative

Operator, you can take two more questions please.

Operator

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

Alex Comer - JP Morgan

Yeah. I have got a few questions. Firstly, just to confirm on Oryx, you are saying that you can ramp up to 34,000 barrel out pretty quickly after the additional filtration equipment comes in. Just wondering whether you could quantify if there is any additional cost on our per barrel basis of that additional filtration equipment that's more on an operating cost basis. Secondly, in your 20-F you comment, you make a decision on a feasibility study on a coal liquid plant in the U. S. in the first half of 2007. I However I wonder where we are on that? Also just in on the part of Nigeria, we've got very, very significant increases in CapEx globally and I just wonder if you could maybe enlighten us as to why you don't think that that is an going to impact the returns on that project. And also just with Mafutha, there isn't quite significant increases employed in the CapEx costs of building in South Africa. And I wonder if you like to hedge it or how does a gas or what the cost per barrel might be from our future in CapEx terms?

Lawrence Patrick Adrian Davies - Chief Executive

Well, let's see if we can tackle those one. Lean, let's get beyond the microphone to deal with the Oryx operating cost specifically.

Giullean Johann Strauss - General Manager

If I understood the question correctly, will there be additional operating cost running additional inflation capacity. No, if there, it will be very marginal. We do want to see additional costs. The U. S. study are still in the pre-feasibility stage which we will do some internal work on that. What was the EGTL question?

Unidentified Company Representative

EGTL whether is it CapEx is grown up globally and then why there our economic returns look more or less the same?

Unidentified Company Representative

While it deals with the higher oil price just makes these project a little robust and thus expansion. So far we have had capital increase in EGTL but we could have -- with good cost management and half because our contractors as we have maintained there, the increase is relatively low. And with higher oil prices, we are still very robust on EGTL returns.

Lawrence Patrick Adrian Davies - Chief Executive

Yes, to build on that last one, we haven't discussed any new capital cost for EGTL. We are having a look at the estimates of that project at the moment, so we may have some news, but the last increase was a couple of percent only and we are sticking to our disclosed figure at this point in time. And what was the last question?

Alex Comer - JP Morgan

The last question --

Unidentified Company Representative

The Mafutha

Lawrence Patrick Adrian Davies - Chief Executive

The Mafutha, yeah, that's right. The question -- no I don't think, Benny, we can really has it based on the cost per barrel installed at this stage. We have not disclosed any thing, because we certainly don't know the answer, and we obviously have some numbers on China and other parts of the world and those have to be transferred to the South African situation, and that's why we haven't done yet. As soon as we get a little bit more comfortable with our own numbers then we will be happy to disclose those, not just yet.

Alex Comer - JP Morgan

Okay, thanks.

Unidentified Company Representative

Operator, next question.

Operator

Yes, sir. Our next question comes from Marc McCarthy with Bear Stearns. Please go ahead.

Marc McCarthy - Bear Stearns

Hi guys. And I have a few questions as well, hopefully they will be easy. First of all, as it relates to the scheme of arrangement, you mentioned the intention to repurchase about 63 million shares. You have 15 million shares in treasury already, and then you mentioned that should it be difficult you will consider a share repurchase by way of scheme of arrangement. Can you explain how that would work and the timeframe for making that decision? That's the first question.

The second question is, I think someone asked this question, of the 65 billion rand that is hypothesized as being spent, as you mentioned only 10 billion of which is actually been approved. How much is in China CTL? I think you mentioned that -- well you showed a chart here that it's actually a small portion of the overall, the red is actually International Energy which I suppose relates to China CTL. So it seems like it's a very low number, I am trying to get that confirmed.

The third question has to do with Escravos, there was some suggestion within the contracting community that the contract -- your EPC contract had been modified in such a way that it was more along the lines of a cost plus structure. Can you comment on anything related to that in the current budget? I haven't seen the analyst book now for the targeted budget before that, but I do see that you have pushed it out I guess about six months, the startup. And then the last question relates to actual spending for 2008. It seems that according to the same chart, only about half of your -- half of next year's 16 billion rand of spending has actually been approved. So what is the budget for next year? And as it relates -- given that your -- this entire BEE transaction, while I personally think is tremendous, is a great idea, does not actually still answer the question really about how you are going to return, what appears to be a growing level of excess capital within the base? So, has there been any other thoughts as it relates to reducing net debt to capital balance which I think end of the year and about 42%, and what is your intentions for dividends or share buybacks separate and distinct from this transaction going forward? I guess that's five questions in total, maybe the last one.

Lawrence Patrick Adrian Davies - Chief Executive

No problem, let's go through them quickly, shall we? Lean, do you want to pick up the first one there and can we just see, where under the scheme of arrangement to Ramon. Can you go over and talk to that one. Let's keep it fairly short but I am afraid I am starting to run out of time.

Unidentified Company Representative

One of your objectives is not to dilute our shareholders with the BEE deal. So we've got some treasury stuff. We will consider buying further shares, if its at economical prices or at reasonable prices. And then coming next year early we will see what will give us the base effect dilutive debt or to go for a scheme of arrangement there. They haven't made up our mind, and we will make up the amount early next year.

Marc McCarthy - Bear Stearns

Just so I understand.

Lawrence Patrick Adrian Davies - Chief Executive

In that detail and what is scheme of arrangement is in the South African context was that clear to you.

Marc McCarthy - Bear Stearns

Yeah, you are going together an offer to all shareholders, just quickly?

Lawrence Patrick Adrian Davies - Chief Executive

Yeah, if we do the scheme of arrangements to make up for the balance of shares, we can't just for whatever reasons that we require. Then one of the options is to put out scheme of arrangements and offer to existing shareholders.

Marc McCarthy - Bear Stearns

Okay.

Lawrence Patrick Adrian Davies - Chief Executive

That's not first preference, but that's one of the options.

Marc McCarthy - Bear Stearns

And what is the timeframe for making these decisions? It seems that at the end of year you have some of the approvals, but --

Lawrence Patrick Adrian Davies - Chief Executive

Yeah, it will be fairly first quarter as next year Marc.

Marc McCarthy - Bear Stearns

First calendar quarter?

Lawrence Patrick Adrian Davies - Chief Executive

Yeah calendar quarter correct. Good. We need to move fairly quickly to the other questions Lean, the CTL China?

Unidentified Company Representative

Was there a CTL China question?

Unidentified Company Representative

Yes, probably how much money have been provided from that 65 billion for CTL China. Well, I think the answer is fairly clear. That's three years away. We are not going to spend serious money on CTL in China. So, yes you are accurate. The International Energy, red portion on that slide does include CTL China but the amounts not that significant.

Marc McCarthy - Bear Stearns

So is that fair to say that...

Lawrence Patrick Adrian Davies - Chief Executive

If CTL is concerned I think I just mentioned earlier, Lean mentioned I don't remember now but we haven't -- we don't a new method for the capital cost of debt whatever we put in the public domain, I think with the interesting fact is the figure that's still relative way but obviously we continuously, we look at this and we continue to look at that. We also talk Lean, so I just keep running, help me if I get it wrong, but we certainly be nature of the contract with our contractors, not ours with Chevron's contractor on EGTL has changed. They have moved from a lump sum to a reimbursable contract and that's pretty much inline with what's happening in the big wide world of E&C out there. So we are not particularly concerned about that and it hasn't interrupted the work that goes on. Lean, you are happy with that?

Giullean Johann Strauss - General Manager

Yes.

Marc McCarthy - Bear Stearns

Guys can I just ask you one.

Lawrence Patrick Adrian Davies - Chief Executive

In 2008, just remind me Marc on that question or can you Christine?

Marc McCarthy - Bear Stearns

You have 16 billion of hypothetical spending capital that approved?

Lawrence Patrick Adrian Davies - Chief Executive

Yeah. I think there is difference between what approved and what is cash level beyond to that. We believe our cash flow to be 16 billion.

Kandimathie Christine Ramon - Chief Financial Officer

16 billion is what's in the budget for 2008.

Lawrence Patrick Adrian Davies - Chief Executive

Yeah. And so Marc it won't be approved project, it will be project for the approved and in execution phase. Obviously the cash flow that carries on into the new financial year. There will be a couple of projects that are approved and cash will flow in the financial year but not too many of those I bet. Kevin, offline can you do just make sure Marc has got the right number there. And new -- the restructuring of the balance sheet Christine, do you want to very briefly deal with that, dealing how that will trend over the next couple of years?

Kandimathie Christine Ramon - Chief Financial Officer

Yeah, as I said in the presentation that we do expect the BEE transactions in our growth plans to move within the target gearing range of 30 to 50% that we see in the short-term.

Unidentified Company Representative

Yes.

Kandimathie Christine Ramon - Chief Financial Officer

And as regards the question was also regards how this will affect our dividends going forward. We do expect to maintain our dividend policy of 2.5 to 3.5 times, and it's important to note that in transactions that we do will not affect our growth strategy going forward.

Lawrence Patrick Adrian Davies - Chief Executive

Yeah, so short answer Marc, we are going to get back with a new gearing range pretty quickly.

Marc McCarthy - Bear Stearns

How actually does the transaction affect your gearing ratio?

Unidentified Company Representative

We are going to take one very brief question from the conference call and then we must wrap.

Lawrence Patrick Adrian Davies - Chief Executive

Not the floor, so can we take one here?.

Tassin Benn - Merrill Lynch

It's Tassin from Merrill Lynch, I just want to know in terms of volume recovery in next year in all your energy business, so the Synfuels and liquid fuels business following obviously this year's maintenance short in impact for inherent volume, what sort of expectations can be involved in as well as imports of fuel?

Lawrence Patrick Adrian Davies - Chief Executive

Okay. Good question. Between Christine and Benny, you want to answer the volumes growth in Synfuels?

Anthony Madimetja Mokaba - Executive Director of Energy Businesses in South Africa

Expectations when we look at the -- because we had a shutdown this year we run ahead one shutdown and so we have five shutdown, so the volumes will be slightly far much better than what you had last year. I think that's the first, and I think the second one we also in liquid fuels had a shutdown and some people don't take that into account and we will get particularly it became right of the tail end of the financial year. And it impacted the bottom line and I think the -- they cut off the yield volume Synfuels had caught that we actually have lost lines of the that shutdown and that is articulated. So, volume wise we expect it to be better than it was in the last financial year.

Lawrence Patrick Adrian Davies - Chief Executive

Can I just sort of, you are disclosing in respect of the volumes growth in terms of...

Kandimathie Christine Ramon - Chief Financial Officer

No.

Lawrence Patrick Adrian Davies - Chief Executive

No, that but it, it's quite reasonable. It will I think be certainly with required what we are planning to achieve anyway. And in case of imports, Benny have to decide that our imports is expected to be lower than last year.

Anthony Madimetja Mokaba - Executive Director of Energy Businesses in South Africa

Yeah

Lawrence Patrick Adrian Davies - Chief Executive

Well, I think some of you want to go in the nearest pub and have a drink on this fine day and so we are not going to keep further. Thank you very much for coming. Thank you so much for your interest and we'll look forward to you having more questions from you in the next couple of days.

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