Commodities Report: BP Sells Petrochemicals Business -- WSJ
June 30 2020 - 3:02AM
Dow Jones News
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)
Copyright (c) 2020 Dow Jones & Company, Inc.
Shell (LSE:SHEL)
Historical Stock Chart
From Mar 2024 to Apr 2024
Shell (LSE:SHEL)
Historical Stock Chart
From Apr 2023 to Apr 2024