BP ramps up energy transition with $5 billion assets sale to Ineos

BP has agreed to sell its petrochemicals business to chemicals giant Ineos in a $5 billion deal as the supermajor takes the next strategic step in focusing its portfolio on energy transition.

The transaction means that BP has now agreed $15 billion of divestments and other disposals through 2019 and 2020 to date, an amount originally expected to be reached by mid-2021.

“The agreed sale, the next strategic step in reinventing BP, will further strengthen BP’s balance sheet and delivers its target for agreed divestments a year earlier than originally scheduled,” the UK supermajor said.

'Steadily re-inventing BP' - Looney

BP’s petrochemicals business is focused on two main businesses: aromatics and acetyls. 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.

Bernard Looney, BP chief executive officer said: “This is another significant step as we steadily work to re-invent BP. These businesses are leaders in their sectors, with world-class technologies, plants and people.

“In recent years they have improved performance to produce highly competitive returns and now have the potential for growth and expansion into the circular economy.

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

Under the terms of the agreement, 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.

Ineos founder and chairman Jim Ratcliffe said: "We are delighted to acquire these top-class businesses from BP, extending the Ineos position in global petrochemicals and providing great scope for expansion and integration with our existing business.”

He added: “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.”

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 1700 staff worldwide. These staff are expected to transfer to Ineos on completion of the sale.

“BP’s petrochemicals business is much smaller than peers, however it does provide majors with a potential avenue to diversify through the energy transition, particularly as renewable chemicals efforts are likely to ramp up in the coming years, ” analysts at Royal Bank of Canada said.

“This deal marks BP’s shift away from the chemicals business over the long term, and effectively removes this option, in our view. Valuation seems in line versus industry peers, and this may lead investors to be a bit more relaxed about BP’s debt issues in the near term.

“BP notes it has hit its $15 billion divestment target following this deal, and while the overall cash proceeds from divestments are likely to be more muted in the near term versus expectations, the $3.6 billion on closing for this deal should help net debt reduction towards the end of the year, ” analysts said.