What BP Gains from the Sale of its Petrochemical Business

Privately held Ineos has been among the best customers for BP plc (NYSE: BP) assets when the oil giant decides that it’s time to sell something. Ineos paid $9 billion in 2005 for BP’s Innovene, an olefins refining subsidiary. BP announced Monday that it had agreed to sell its global petrochemical business to Ineos for $5 billion.

In its announcement, BP said the transaction further strengthens the company’s balance sheet, the “next strategic step in reinventing [BP].”

Under the terms of the deal, Ineos will pay a deposit of $400 million now and an additional $3.6 billion once the transaction closes. The remaining $1 billion will be paid in installments beginning in May of 2021 and ending in June 2021. The transaction is subject to regulatory approval and is expected to be completed by the end of 2020.

BP CEO Bernard Looney noted that while the petrochemical business had the potential to grow and expand, there was limited overlap with the rest of BP’s business and it would have been costly to grow the business at a time when the company is transitioning to a greener future.

In addition to the Innovene acquisition in 2005, Ineos paid BP $250 million in 2017 for the company’s Forties pipeline system that delivers some 600,000 barrels a day of North Sea crude to various terminals in Scotland and to the refineries Ineos acquired from BP in 2005.

Brian Gilvray, BP’s CFO, commented that the announced sale completes the company’s planned divestiture of some $15 billion in assets “a full year ahead of schedule.”

All 1,700 employees of BP’s global petrochemical business are expected to transfer to Ineos once the sale is completed. The sale includes two wholly owned plants in the United States along with an agreement to sell certain chemicals manufactured by Eastman.

Other facilities include plants in Hull, England, and Geel, Belgium, both wholly owned by BP. Ineos will also take over BP’s 100% owned plant in Indonesia and its joint ventures in other Asian countries. BP’s petrochemical assets in Germany are too highly integrated with the company’s 250,000-barrel-a-day oil refinery there and are not included in the sale.

Investors liked the deal, pushing BP’s American Depositary Shares up by about 3.7% to $23.59 in a 52-week range of 15.51 to $42.63. The consensus 12-month price target is $30.69. BP’s dividend yield is a lofty 11.07% at the current trading price.