LONDON—Energy giant BP PLC will 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, reports the Wall Street Journal.
The sale announced yesterday could help BP pare its relatively high debt load. Among major oil companies, BP has one of the highest levels of debt in relation to its size.
It also separates BP from its peers, Royal Dutch Shell and Exxon Mobil, which are growing their petrochemicals businesses. BP said it would have taken a considerable investment to grow its own petrochemicals operation, which is smaller than its competitors. Petrochemicals are expected to be the largest driver of oil demand in the future, making up more than a third of oil demand growth to 2030, reports the International Energy Agency.
This is the first multibillion-dollar deal by an oil major since COVID-19 forced companies to cut costs and scale back investment plans. The oil industry recently faced increased production from and a due to the pandemic lockdown. Since the first of this year, oil prices have lost more than a third of their value.
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 devastating blow to oil prices. BP has been working on a yet-to-be revealed reorganization plan, due to launch in September.
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. Founded in 1998, Ineos is majority owned by British billionaire Jim Ratcliffe.