Part of moves to 'reinvent' BP

Covers BP's aromatics, acetyls businesses

BP hits current divestment target a year early

Petrotahlil — Ineos has boosted its capacity to produce acetyls and aromatics products after agreeing on June 29 to buy the majority of BP's petrochemicals business for $5 billion in a bid to increase its share of the global market for polymers.

The independent producer will acquire all of BP's petrochemicals business in Asia, the US and Europe, both companies said.

"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," Jim Ratcliffe, founder and chairman of Ineos said in a press release on June 29.

Global supply of acetic acid (AA) -- a refined substance used predominantly to make paints, adhesives and packaging -- has lengthened during the first half of 2020 as demand was hit by the pandemic. Demand from the automotive sector has been particularly affected, with car production and sales declining this year.

AA spot prices have been under pressure globally, with European values falling by 15% since the beginning of the year, according to S&P Global Platts data. In the US -- a large producer of AA -- spot prices have fallen by around 30% during the same period, the data shows.

In aromatics, BP is a global leader in the production of purified terephthalic acid (PTA) and its precursor paraxylene (PX), with production units in China, US, and Belgium. PTA is used mainly to produce polyester coatings, especially in the automotive sector.

Significant step

Europe's PX industry is currently struggling. A downstream demand slump caused by COVID 19 has aggravated supply glut issues in the region, causing producers to cut production rates.

BP's petrochemicals assets in Gelsenkirchen and Mulheim, Germany, are integrated with the company's refinery and are not included in the sale, the press release said. The acetyls business produces AA and derivatives, with manufacturing plants in the US, the UK, China, Korea, Taiwan and Malaysia.

In Hull, UK -- where BP's former AA unit is located -- Ineos already has petrochemicals operations and produces ethyl acetate, a downstream product for AA. Ineos currently operates the largest ethyl acetate unit in Europe.

Last year, BP's petrochemicals division produced 9.7 million mt of products and employed over 1,700 staff worldwide.

The sale will also include related interests, such as the chemical recycling technology BP Infinia, and BP's interest in acetylated wood developer Tricoya, BP said.

"This is another significant step as we steadily work to reinvent BP," CEO Bernard Looney said in a statement. "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."

INEOS has bought a number of businesses from BP, notably the $9 billion purchase of Innovene in 2005, a subsidiary that comprised the majority of its then chemicals assets, and two refineries.

Divestment proceeds

Following the agreed deal, BP said it has now meet its current $15 billion divestment target through 2019 and 2020, a year earlier than expected.

The move comes two weeks after BP said it plans to write off up to $17.5 billion worth of assets after cutting its long-term price assumptions for oil and gas to reflect expectations that the coronavirus pandemic will accelerate a shift away from fossil fuels.

The write-offs would likely push BP's debt gearing to 47.8%, by far the highest in the sector, according to Royal Bank of Canada analyst Biraj Borkhataria.

Proceeds from the sale of its petrochemicals business will be used for "general corporate purposes," BP 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 deal completion. An additional $1 billion will be deferred and paid in three separate installments of $100 million each in March, April and May 2021, with the remaining $700 million payable by the end of June 2021.

Subject to regulatory and other approvals, the transaction is expected to complete by the end of 2020.