Sale to Ineos brings in $5 billion to help trim debt levels, stands out in oil's M&A dry spell

By Sarah McFarlane 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (June 30, 2020).

LONDON -- Energy giant BP PLC has agreed to sell its petrochemicals business to a British chemicals company for $5 billion, marking the largest deal by an oil major since the coronavirus outbreak gripped the global economy.

The sale to Ineos Ltd. could help BP pare its relatively high debt load and separates the company from its peers. Royal Dutch Shell PLC and Exxon Mobil Corp. have been expanding their petrochemicals businesses partly because they have a brighter demand outlook than other areas such as transportation fuels.

BP is exiting the business, it said Monday, because it would have taken considerable investment to grow the division. BP's business, which is smaller than its peers', included components used in the making of polyester, paints, adhesives and packaging.

Petrochemicals are pervasive in everyday products, such as plastics, fertilizers and fabrics, and they 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 advisers 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 new 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 one-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 write-down of as much as $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 refining and processing assets as companies were reluctant to sell oil and gas fields 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 were up 3.4% in London on Monday.

The deal means BP has reached its target of $15 billion of asset sales a year earlier than planned. Among the major oil companies, BP 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.

BP will retain some petrochemicals facilities as part of its German refining business.

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 company Total SA.

Ben Dummett contributed to this article

Write to Sarah McFarlane at sarah.mcfarlane@wsj.com

Corrections & Amplifications The new coronavirus was declared a pandemic in March. An earlier version of this article incorrectly said it was declared a pandemic in early May. (Corrected on June 29)

 

(END) Dow Jones Newswires

June 30, 2020 02:47 ET (06:47 GMT)

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