bp has agreed to sell its global petrochemicals business to INEOS for $5 billion, subject to customary adjustments. The agreed sale is a strategic step in reinventing bp and delivers its $15 billion target for agreed divestments a year earlier than originally scheduled.
Bernard Looney, bp chief executive officer said though the decision will come as a surprise, it is another significant step to reinvent bp through the energy transition.
“Strategically, the overlap with the rest of bp is limited and it would take considerable capital for us to grow these businesses. As we work to build a more focused, more integrated bp, we have other opportunities that are more aligned with our future direction.”
bp’s petrochemicals business is focused on two main businesses – aromatics and acetyls – each of which has leading technology and advantaged manufacturing plants, including a strong presence in growth markets in Asia. In total, the businesses have interests in 14 manufacturing plants in Asia, Europe and the US and in 2019 produced 9.7 million tonnes of petrochemicals.
Will Scargill, Managing Oil & Gas Analyst at GlobalData, said while many oil and gas companies have recently looked to petrochemicals integration as a way to drive value, BP’s petrochemicals unit was not particularly well suited to its new energy transition strategy.
“Its aromatics focus tied it to oil, putting it at odds with the shift to cleaner sectors such as gas and renewables and making it a natural area for divestment as the company looks to streamline.”
Mr Scargill said meeting its $15bn divestment target ahead of schedule will also be a welcome financial boost given the market turmoil caused by the COVID-19 pandemic.
“Meanwhile, for INEOS, this transaction will be a major step forward in its growth plans. At a stroke, the company will become a major player in aromatics, while at the same time building on geographical and operational synergies.”
INEOS has a network spanning over 180 sites in 26 countries, employing some 22,000 staff worldwide. Over the past two decades, INEOS has acquired a number of businesses from bp, most notably the 2005 $9 billion purchase of Innovene, the bp subsidiary that comprised the majority of bp’s then chemicals assets and two refineries.
INEOS will pay bp a deposit of $400 million and will pay a further $3.6 billion on completion. An additional $1 billion will be deferred and paid in three separate instalments of $100 million in March, April and May 2021 with the remaining $700 million payable by the end of June 2021. Subject to regulatory and other approvals, the transaction is expected to complete by the end of 2020.
In total, the businesses included in the transaction currently employ over 1,700 staff worldwide. These staff are expected to transfer to INEOS on completion of the sale.
bp expects to report its second quarter 2020 results on 4 August and to hold a capital markets day to set out details of its new strategic direction in mid-September.