Bernard Looney. Picture: BP HANDOUT VIA REUTERS
Bernard Looney. Picture: BP HANDOUT VIA REUTERS

London — British energy group BP, hit hard by the coronavirus pandemic slashing demand for oil, announced on Monday the sale of its petrochemical business to privately owned rival Ineos for $5bn.

 BP said the sale would strengthen its balance sheet and deliver its target for agreed divestments a year earlier than scheduled.

"I recognise this decision will come as a surprise and we will do our best to minimise uncertainty. I am confident however that the businesses will thrive as part of Ineos, a global leader in petrochemicals," BP CEO Bernard Looney said.

BP said that 1,700 staff employed by its petrochemical business worldwide were expected to transfer to Ineos on completion of the sale that meets a $15bn divestment target.

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

The Irish national, who became CEO of BP in February, is targeting "net zero" carbon emissions for the company by 2050.

BP must rebuild its finances, having earlier in June said it would take a hit of up to $17.5bn in the second quarter.

With the coronavirus fallout ravaging global oil demand, BP has decided also to axe about 10,000 jobs, or 15% of its global workforce.

After companies worldwide closed their doors and airlines grounded aeroplanes at the height of the Covid-19 outbreak towards the end of the first quarter, oil prices dropped off a cliff, causing them to briefly turn negative.

Prices have however rebounded sharply in recent weeks as governments ease lockdowns and businesses slowly reopen.

'Top-class business' 

"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," Ineos founder and chair Jim Ratcliffe said in a separate statement on Monday.

BP's aromatic and acetyls business consists of 15 sites — five in the Americas, two in Europe and eight across Asia.

"Aromatics provides the building blocks for the global polyester industry, key to fibres, films and packaging," Ineos said in its statement.

"Acetyls support a wide range of downstream industries in food flavouring and preservation, pharmaceuticals, paints, adhesives and packaging," it said.

Ineos will pay $4bn to BP upon completion of the deal  and the remaining $1bn by June 2021.

BP's share price was up 3.2% at 314.5p in London afternoon deals following news of the sale.

The sale "raises cash for a firm that has been severely hit by the pandemic, while streamlining and potentially reinventing the oil giant (BP) into a different kind of energy company", said Connor Campbell, analyst at Spreadex trading group.

Ineos, majority-owned by British billionaire Ratcliffe, employs about 22,000 people across 26 countries.

In 2005, Ineos spent $9bn on purchasing chemical assets and refineries from BP. Under previous CEO Bob Dudley, meanwhile, BP kick-started a $15bn divestment programme.

In 2020, the energy major agreed also to sell its Alaska operations to Hilcorp Alaska for $5.6bn.

Together the disposals were initially aimed at recouping $10bn to finance BP's $10.4bn purchase of US oil and gas operations belonging to mining group BHP Billiton.