* Cost of Lake Charles plant up around $1 bln
* Expects lower return on project
* Shares fall more than 10% (Adds CEO comment, share price, asset sale)
By Tanisha Heiberg and Emma Rumney
JOHANNESBURG, May 22 (Reuters) - Sasol has raised the expected cost of its U.S. ethane cracker project by around $1 billion following a review by the project’s new management, the South African petrochemicals firm said on Wednesday, sending its shares more than 10% lower.
The estimate for the Lake Charles Chemicals Project (LCCP), which will convert natural gas into plastics ingredient ethylene, is now $12.6-12.9 billion, including a contingency of $300 million, Sasol said in a stock exchange announcement.
The company said the review of the project, which was initially expected to cost $8.9 billion in 2014, revealed oversights such as duplicate credits and overlooked contracts, adjustments for potential insurance claims, procurement back-charges and remaining work and repairs that needed to be done.
“We are extremely disappointed with the increase in LCCP’s capital costs. We take accountability and we are confident that the revised plan will be delivered,” said joint president and chief executive officer Bongani Nqwababa on a conference call.
Sasol had said in February the plant in Louisiana, which saw the first of seven units start production earlier this year, was expected to cost up to $11.8 billion.
Shares in Sasol, the world’s biggest maker of motor fuel from coal, were down 12.5 percent to 377.45 rand at 0753 GMT.
“The numbers just don’t look very flattering at all,” said Ryan Woods, market trader at Independent Securities.
Sasol also cut the forecast return from the project to 6-6.5% from 7.5% due to the increased cost as well as the outlook for market prices.
It reduced the project’s expected earnings before interest, tax, depreciation and amortisation (EBITDA) for the 2022 financial year to $1 billion from $1.3 billion.
Sasol said the project was 96% complete, with capital expenditure at $11.4 billion as of the end of March.
The cost increase will result in higher gearing - net debt to EBITDA - for Sasol for 18 to 24 months, with gearing expected to peak at 2-2.3 times during fiscal 2019, the company said.
“We believe that the balance sheet is sufficiently robust to absorb the increase in cost and our capital allocation strategy is unchanged. We remain confident for the long-term outlook for the LCCP,” said Nqwababa.
Sasol, which has plans to offload around $2 billion in assets across its portfolio, said the sales would further support deleveraging. (Reporting by Tanisha Heiberg and Emma Runmey, Editing by Subhranshu Sahu and Mark Potter)