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MarketScreener Homepage  >  Equities  >  London Stock Exchange  >  BP plc    BP.   GB0007980591

BP PLC

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BP Exits Petrochemical Business in $5 Billion Deal--2nd Update

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06/29/2020 | 09:45am EDT

By Sarah McFarlane

LONDON -- Energy giant BP PLC has agreed to sell its petrochemicals business to British chemicals company Ineos Ltd., in a $5 billion deal that will help reshape its business for the global transition to lower-carbon energy, the company said on Monday.

The deal could help BP pare its relatively high debt load and separates the company from its peers, as Royal Dutch Shell PLC and Exxon Mobil Corp. have been growing their petrochemicals businesses. BP said it would have taken considerable investment to grow the division, which is smaller than its peers' businesses.

Petrochemicals 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 advisors 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 novel 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 a 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 writedown of up to $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 downstream assets as companies were reluctant to sell oil and gas fields at a time 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 rose 2.6% on Monday.

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

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 giant Total SA.

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

 

Stocks mentioned in the article
ChangeLast1st jan.
BP PLC 1.69% 301.3 Delayed Quote.-37.10%
EXXON MOBIL CORPORATION 0.02% 42.66 Delayed Quote.-38.88%
ROYAL DUTCH SHELL PLC 1.35% 14.576 Delayed Quote.-44.91%
WTI 0.47% 39.715 Delayed Quote.-34.61%
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Financials (USD)
Sales 2020 180 B - -
Net income 2020 -7 713 M - -
Net Debt 2020 48 828 M - -
P/E ratio 2020 -7,95x
Yield 2020 9,80%
Capitalization 74 940 M 75 313 M -
EV / Sales 2019
EV / Sales 2020 0,69x
Nbr of Employees 67 600
Free-Float 93,1%
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Mean consensus OUTPERFORM
Number of Analysts 23
Average target price 4,69 $
Last Close Price 3,72 $
Spread / Highest target 80,0%
Spread / Average Target 26,1%
Spread / Lowest Target -28,3%
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NameTitle
Bernard Looney Chief Executive Officer & Director
Helge Lund Chairman
Andy Hopwood COO & Executive VP-Upstream Strategy
Murray Auchincloss Chief Financial Officer
Angela Rosemary Emily Strank Chief Scientist & Head-Downstream Technology
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