(Bloomberg) — Sasol Ltd. raised its cost estimate for the Lake Charles chemical project in the U.S. by almost 25 percent to $11 billion, following a review.
The revision reflects “poorer-than-anticipated subsurface conditions,” requiring more ground works, weather delays, and higher construction and labor costs, the Johannesburg-based company said in a statement. It expects most units at the project in Louisiana to start producing in early 2019, with the remainder completed by the end of that year.
“There is a very good probability of keeping the $11 billion” estimate, Sasol joint-Chief Executive Officer Bongani Nqwababa, said by phone. “We obviously have plans to make sure it’s lower than that by improving productivity.”
The new estimate is a blow to a company that’s seen profit eroded by lower oil prices. In June, then-Chief Executive Officer David Constable, who implemented a series of cost-saving programs at Sasol, said an increase to $11 billion was a “worst-case scenario.” The company had forecast a cost of $8.9 billion in 2014 when it made a final investment decision.
The chemicals complex, which includes a 1.5 million-ton-a-year ethane cracker, is more than 50 percent complete, Sasol said Tuesday.
“The funding is in place and it will not change our” debt-to-equity gearing targets, Nqwababa said. The increased cost of the Lake Charles project won’t affect dividends, which the company intends to pay, he said.
The shares were little changed at 374.5 rand at the close of trading in Johannesburg.
Constable handed over to new joint CEOs Nqwababa and Stephen Russell Cornell on July 1. He remains an adviser on some of Sasol’s largest projects.