BP Exits Petrochemical Business in $5 Billion Deal--2nd Update
June 29 2020 - 9:59AM
Dow Jones News
By Sarah McFarlane
LONDON -- 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 could help BP pare its relatively high debt load and
separates the company from its peers, as Royal Dutch Shell PLC and
Exxon Mobil Corp. have been growing their petrochemicals
businesses. BP said it would have taken considerable investment to
grow the division, which is smaller than its peers' 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.
BP and Ineos first proposed the deal several years ago and
discussions were reignited in recent months, according to people
familiar with the matter. The companies didn't use advisors for the
deal.
Ineos, one of the world's largest petrochemical companies,
bought the bulk of BP's petrochemicals business in 2005 for $9
billion.
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.
Earlier this month, BP said it was cutting 14% of its global
workforce and would take a writedown of up to $17.5 billion on its
asset values, accelerating existing plans to reshape the company
after the coronavirus pandemic's crushing impact on oil prices.
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.
"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, 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.
Write to Sarah McFarlane at sarah.mcfarlane@wsj.com
(END) Dow Jones Newswires
June 29, 2020 09:44 ET (13:44 GMT)
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