BP Exits Petrochemical Business in $5 Billion Deal--Update
June 29 2020 - 8:05AM
Dow Jones News
By Sarah McFarlane
Energy giant BP PLC has agreed to sell its petrochemicals
business to British chemicals company Ineos Ltd., in a $5 billion
deal that will help reshape its business for the global transition
to lower-carbon energy, the company said on Monday.
The deal will help strengthen BP's balance sheet and separates
the company from its peers, as Royal Dutch Shell PLC and Exxon
Mobil Corp. have been growing their petrochemicals businesses.
Petrochemicals are expected to be the largest driver of oil demand
in the coming years, making up more than a third of oil demand
growth to 2030, according to the International Energy Agency.
It is the first multibillion-dollar deal by an oil major since
the novel coronavirus caused companies to cut costs and scale back
investment plans. The oil industry faced a double blow of increased
production from Saudi Arabia and a collapse in demand. Oil prices
have lost more than a third of their value since the start of the
year.
Bankers said they expected deal activity to be focused on
infrastructure and downstream assets as companies were reluctant to
sell oil and gas fields at a time when energy prices were under
pressure.
BP said it would have taken considerable investment to grow the
division, which is smaller than its peers' businesses.
"This is another significant step as we steadily work to
reinvent BP," said Bernard Looney, the company's chief
executive.
Mr. Looney, who took the helm in February, had been crafting a
yet-to-be revealed reorganization plan, due to launch in
September.
BP's shares rose 2.6% on Monday.
The deal means BP has reached its divestment target of $15
billion of asset sales a year earlier than planned. Among the major
oil companies, the company has one of the highest levels of debt in
relation to its size.
In April the company said that its gearing -- the ratio of net
debt to the total of net debt and equity -- rose to 40% including
leases, from 35% in the previous quarter. The company targets
20%-30% gearing but expects the level to remain above 30% into
2021.
"The deal goes some way to fill the cash-flow deficit faced by
BP," said Irene Himona, managing director for oil-and-gas equity
research at Société Générale.
As part of the deal, Ineos, one of the world's largest
petrochemical companies, will pay a deposit of $400 million and
$3.6 billion upon completion, which is expected by the end of the
year. The $1 billion remainder will be paid by the end of June
2021.
Ineos was founded in 1998 and is majority owned by British
billionaire Jim Ratcliffe, one of the U.K.'s richest men. Last year
it bought two polystyrene plants in China from French energy giant
Total SA.
Earlier this month, BP said it was cutting 14% of its global
workforce, accelerating existing plans to reshape the company after
the coronavirus pandemic's crushing impact on oil prices.
Write to Sarah McFarlane at sarah.mcfarlane@wsj.com
(END) Dow Jones Newswires
June 29, 2020 07:50 ET (11:50 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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