BP sells petchems arm for $5b in energy transition revamp

BP has agreed to sell its global petrochemicals business to billionaire Jim Ratcliffe’s Ineos for $5 billion, pulling out of a sector widely seen as a key driver of oil demand growth in the coming decades.

The surprise move means BP has hit its $15 billion asset sales target a year ahead of schedule as CEO Bernard Looney prepares the company for a shift to low-carbon energy.

The company’s London-listed shares moved higher after the news, rising about 2.5 per cent by 1057 GMT.

Looney acknowledged that the sale of the business, which employs 1,700 people and produced 9.7 million tonnes of petrochemicals last year, “will come as a surprise”.

“Strategically, the overlap with the rest of BP is limited and it would take considerable capital for us to grow these (petrochemical) businesses,” Looney said in a statement.

“Today’s agreement is another deliberate step in building a BP that can compete and succeed through the energy transition.”

The business includes stakes in manufacturing plants in the United States, Trinidad and Tobago, Britain, Belgium, China, Malaysia and Indonesia. The petrochemical plant attached to BP’s oil refineries in Gelsenkirchen and Mulheim in Germany are not included. Plastics and other petrochemical products will drive global oil demand to 2050, offsetting slower consumption of motor fuel, the International Energy Agency (IEA) said in a 2018 report.

BP sold the bulk of its petrochemicals business in 2005 to Ineos, which has a network of more than 180 sites in 26 countries and about 22,000 employees.

Looney took office in February and quickly set out a plan to reinvent BP by shifting its focus from oil and gas to low-carbon energy and renewables. He has since announced plans for a sharp reduction in the company’s carbon emissions by 2050 and a major restructuring of the 112-year-old company.

BP also announced plans to cut 2020 spending by 25 per cent and axe 10,000 jobs as the coronavirus-related collapse in energy consumption accelerates the company’s transition plans.

Ineos will pay a deposit of $400 million and a further $3.6 billion on completion of the deal, which is expected by the end of the year.

The remaining $1 billion will be paid in instalments in 2021.

“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,” Ineos Chairman Ratcliffe said in a statement.

British oil major BP has agreed to discount the price of the North Sea assets it is selling to Premier Oil, Premier said earlier this month.

Under the new deal, Premier only has to pay $115 million out of the initial price of $625 million if oil prices, which have slumped around 40 per cent this year and currently stand at around $40 a barrel, rise above $55 a barrel.

The agreement also reduces Premier’s liability for field abandonment to $240 million from $600 million.

The revised price highlights how the crude price collapse is forcing sellers of oil and gas asset to compromise.

“The structure of the consideration and phasing of payments are being adjusted to reflect the material developments in global commodity markets,” Premier said in a statement.

Under the deal, which is effective from January 2019, BP will retain the $300 million the North Sea fields generated throughout 2019, bringing the cash payment due to the British oil major down to around $210 million.

To fund the acquisition, Premier said it would issue 82.2 million new shares to activist investor ARCM at a price of 26.69 pence each, a 9.64 per cent discount to the volume-weighted average price over the last five days.

This represents around 9 per cent of the company, which had a market capitalisation of $336 million and $1.9 billion in net debt.

The new arrangement with ARCM, which owns around 15 per cent of Premier’s debt and has a large short position in its shares, allows Premier to proceed with the deal.

ARCM will use the new shares to reduce its short position of around 17 per cent.

Reuters