BP (BP.) will sell off its petrochemicals business to private UK energy and chemicals giant Ineos for $5bn (£4.1bn). The supermajor called the sale “the next strategic step in reinventing” itself as a broader energy company.
The $5bn price takes it over the $15bn goal for divestments before the end of 2021. It will be an additional cut to gearing as well, after the hybrid bond issue earlier this month that will lower net debt and increase total equity. Jefferies forecasts BP reaching gearing close to 30 per cent by the end of the year. It was 36 per cent on 31 March, but was expected to rise to over 40 per cent at the end of the June quarter with up to $17.5bn in impairments included for the quarter.
The petrochemicals division manufactures aromatic and acetyl products, and contributed 11 per cent of last year’s replacement cost (RC) profit before tax and interest, the company’s preferred profit measure. The 2019 RC profit was down around 60 per cent on 2017, when profits were around $1bn. The division makes precursor products for plastics manufacturing. Other majors have similar operations that are further integrated, like Royal Dutch Shell’s (RDSB) ethane cracking plant in the US.
BP chief executive Bernard Looney said it would have taken “considerable capital” to grow the petrochemicals business. “As we work to build a more focused, more integrated BP, we have other opportunities that are more aligned with our future direction,” he said.
Ineos will pay an initial $400m deposit and then $3.6bn on completion. The rest of the sale price will be handed over in installments up to June 2021.
This is not the first time Ineos has helped an energy major change direction. In 2017, it bought Ørsted’s (Den:ORSTED) upstream business for over $1bn. BP is in the midst of major changes, with a February announcement of net zero carbon goal by 2050 coming right before Covid-19 triggered an oil price collapse and mass layoffs at the company. Earlier this month, BP cut its long-term oil price forecast by 30 per cent, to $50 per barrel, triggering a write-down of up to $17.5bn.
