Sasol's Slick Results

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Sasol (NYSE: SSL) is a synthesizer.

No, not like the kind rocked by Swedish glam band Europe. Sasol synthesizes fuel by liquefying coal and natural gas. Unlike some players on the fringes of the fuel frontier, the South African heavyweight's technology is proven. Of course, proven doesn't mean perfect, and Sasol was still working out some kinks during the first half of fiscal 2008.

More on that in a moment. First, the financial results, which were robust. Fifteen percent was the magic number for the period, with gains of that magnitude across revenue, operating profit, and net income. Buybacks juiced the per-share earnings gain to 18%. Sasol is very well-capitalized and continues to ratchet up dividend payments as well. That 2.4% yield is competitive with those offered by ConocoPhillips (NYSE: COP), ExxonMobil (NYSE: XOM), and Petrobras (NYSE: PBR).

Since Sasol is an integrated firm, there are a lot of different operating segments to look at, but things were pretty sound across the board, from coal mining to downstream chemicals. The biggest segment, synfuels, was held back by Sasol's hedge on oil prices, but the oil segment offset that loss, and then some.

Remember Sasol's issue with tiny intruders? There's still fine material constraining output at the Oryx gas-to-liquids (GTL) plant, but management affirmed that extra equipment to further remove impurities will be installed later this year. It's worth noting that Oryx is already making a positive contribution to operating profit at current output levels, which averaged 9,000 barrels a day in the half year, and 16,000 barrels per day in December.

Despite these improvements, partner Chevron (NYSE: CVX) appears to have lost its GTL gusto. First, the firm sold its right to participate in the next phase of Oryx back to Sasol. Then, just this week, Chevron announced that it will be utilizing its Wheatstone gas field in Australia for a liquefied natural gas, or LNG, plant. The two may sound effectively the same, but LNG is a temporary means of transporting natural gas overseas, rather than a fuel. This Wheatstone decision precludes a GTL facility, which the two parties had been contemplating.

Still, Sasol considers itself to be in the sweet spot in terms of global project development opportunities, and I don't disagree. With the biofuels backlash seemingly heating up daily, Sasol's synthetic fuels sound pretty sweet to these Foolish ears.