BP this morning made the surprise announcement that it has reached a deal with Ineos over a $5 billion sale of its petrochemicals business. Ineos, the privately owned petro-chemicals giant still majority owned by founder Sir Jim Ratcliffe, is a proven buyer of BP’s petrochemical assets, having already purchased the bulk of the unit for $9 billion 15 years ago.
That left BP’s petrochemicals interests already significantly smaller than those of most of its energy major peers. The company is now moving completely out of the industry through the $5 billion sale of what was left.
While a surprise for markets today, the sale both helps fortify BP’s balance sheet at a difficult moment as well as tying in to BP chief executive Bernard Looney’s commitment to “reinvent” the company. BP is targeting net zero carbon emissions by 2050, which necessitates a move away from fossil fuels. The petrochemical assets being sold also had limited strategic overlap with the rest of BP’s business.
The BP share price has gained by around 3.3% so far today after the news broke this morning.
The business being sold to Ineos is spread between 14 international sites employing around 1700 staff globally. It generated profits of $396 million last year. The facilities being sold produce aromatics used in polyester fibres, films, packaging and acetyls used in products from food preservatives to pharmaceuticals and paints. The deal agreed will see Ineos pay BP a deposit of $400 million for the business. $3.6 billion balance will be due on completion, which is expected later this year. The remaining $1 billion will be made in instalments over the next 12 months.
Despite recording group profits of $3.5 billion last year, BP has come under pressure to cut costs and improve its balance sheet this year with oil prices collapsing thanks to first oversupply and then the coronavirus crisis. It has already been announced that 10,000 of the company’s 70,000-strong workforce will be cut and a reduction in the company’s dividend is expected to be announced in coming months.
Mr Looney recently told BP investors that at current rock bottom oil prices the company was “losing millions of dollars, every day”. Debt levels increased over the first quarter and assets have been written down in value through a $17.5 billion impairment charge. The company said that was necessary to reflect a revised long-term oil price outlook that expects oil prices to be $20 a barrel less than previously anticipated.
BP’s outgoing chief financial officer Brian Gilvary commented this morning:
“With today’s announcement we have met our $15 billion target for agreed divestments a full year ahead of schedule, demonstrating the range and quality of options available to us.” He added that Ineos was “in many ways a natural owner” for the assets.
On behalf of Ineos, Sir Jim Ratcliffe commented:
“This acquisition is a logical development of our existing petrochemicals business extending our interest in acetyls and adding a world leading aromatics business supporting the global polyester industry.”
