ICIS Top M&A: Oman Oil's acquisition of Oxea is the ICIS Deal of the Year

02 May 2014 10:06 Source:ICIS Chemical Business

The Oman Oil Company’s acquisition of oxo-alcohols producer Oxea is a game changer for the firm, giving it a platform for global downstream expansion

ICIS Chemical Business has chosen Oman Oil Company’s (OOC) acquisition of oxo-alcohols producer Oxea from Advent International as the “ICIS Deal of the Year” for 2013. Oxea has 1.3m tonnes of oxo products capacity and generated sales of €1.5bn ($2.1bn) in 2012.

 

 OOC's acquisition of Oxea is estimated to be among the largest made in cheimcals in 2013

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The acquisition is estimated to be among the largest made in chemicals last year, and is important from a strategic perspective in oil and petrochemicals. The deal marks the exit from a well performing business by one of the largest and most experienced global private equity firms and the entry into a growing downstream market by an increasingly important Middle East petrochemicals producer.

“OOC’s downstream business unit looks at businesses and investments that expand our feedstock and capabilities of chemical building blocks into value chains that benefit from Oman’s unique geostrategic location,” said Philippe Raynaud de Fitte, executive vice president, downstream businesses at OOC, in an interview with ICIS.

“The Oxea acquisition matches perfectly our expansion plans. It strengthens our position in the global chemical sector and contributes to our long-term downstream strategy, while substantially reinforcing Oxea’s growth,” he added.

In making the acquisition, OOC is supporting the sultanate’s “Vision 2020” economic development programme which is aimed at diversifying the Oman economy across different businesses and away from oil.

“With its international presence in Europe and North America, leading technology, efficient platform and longstanding experience in the oxo segment, Oxea will support our further expansion into the chemical sector,” said H.E. Nasser bin Khamis Al Jashmi, chairman of Oman Oil Company, at the time of the deal.

“In addition, it provides adequate scope for growth in the Duqm Special Economic Zone, expected to become a major regional hub for steel industries and hydrocarbon product storage, as well as for the refining and petrochemicals sector,” noted de Fitte.

INTEGRATION, EXPANSION OPPORTUNITY
It is the integration and expansion opportunity downstream for OOC that is the cornerstone of the deal. Oman is sometimes forgotten when talking about petrochemicals in the Middle East but the sultanate will become an increasingly important player in the sector. It is expected to benefit from the World Expo in Dubai in 2020 and the World Cup in Qatar in 2022.

Production capacity is increasing as these two major events approach.

“In the next decade $15bn worth of investments are planned for the Duqm Special Economic Zone development. The Oxea acquisition is one of the steps towards creating an international industrial and business hub at Duqm and creating thousands of opportunities for local businesses to capitalise on,” said de Fitte.

OOC is looking at building a refinery and petrochemical complex in Duqm in a joint venture with Abu Dhabi’s International Petroleum Investment Co (IPIC).

“Our direct investment at this stage includes a large scale refinery and a massive crude storage terminal. In the near future, an oxo chemical manufacturing plant is part of the plan – it will enjoy direct access to feedstock, creating a vertically integrated supply chain. In addition, it enjoys the geo-strategic location of Duqm, which grants direct access to major trade flows towards Asia and Africa,” said de Fitte.

“The refinery at Duqm will be producing large volumes of naphtha and this will provide the main feedstock to a world scale integrated chemical complex that is currently being planned. The key benefit is to create vertically integrated value chains,” he added.

Also in the sultanate, Oman Refineries and Petroleum Industries Co (Orpic) is currently working on the front-end engineering and design (FEED) of a $3.6bn integrated plastics project in Sohar that is due to be completed in 2018. The company already has aromatics and polypropylene (PP) production capacities.

The project includes an 800,000 tonne/year mixed feed steam cracker, an 838,000 tonne/year linear low density polyethylene (LLDPE)/high density PE (HDPE) swing plant, a 215,000 tonne/year polypropylene (PP) plant; and a 46,000 tonne/year benzene unit.

Orpic is owned by the Sultanate of Oman and Oman Oil Company SAOC, a sultanate-owned company that is seeking investment opportunities in the energy sector outside Oman.

OOC’s acquisition of Oxea was struck in October 2013 and completed two months later in December. HSBC served as financial advisor to OCC on the deal. Legal advisors included Vinson & Elkins, with support from Deloitte and Ernst & Young. Nexant acted as technical and commercial advisors, while Pilko & Associates participated as HSE (heatlth, safety and environment) ­advisor.

Apart from its takeover of Oxea, Oman Oil has a 90% stake in Oman’s Salalah Methanol, a 50% stake in Oman India Fertilizer and a 50% holding in Sohar PTA/PET in the polyester chain.

PRIVATE EQUITY ROLE
The Oxea story illustrates the role that private equity continues to play in re-shaping the petrochemical industry through mergers and acquisitions (M&A). As created by Advent, Oxea levers the expertise in oxo products amassed by former industry majors like Germany’s Hoechst and Degussa.

It was created in 2007 from businesses owned by now US-based chemicals producer Celanese and acquired for €408m by Advent International. They included a joint venture with Degussa, now Evonik.

Under Advent, the business has reportedly flourished and the product portfolio expanded towards high-margin oxo derivatives.

TECHNOLOGY ASPECTS
Those derivates are the alcohols, aldehydes and ketones vitally important in downstream chemicals and materials manufacture. They are made using a reaction called hydroformulation. The 75th anniversary of the filing of a patent for the oxo process by German chemist, Otto Roelen, then research director with Ruhrchemie was celebrated last year.

Roelen’s work on hydroformulation set the stage for the development of industrial-scale organometallic chemistry.

The process enabled the production of aldehydes from olefins and opened up synthetic routes to alcohols and other oxo products. The anniversary was commemorated in Germany in late September with a symposium at Oxea’s Ruhrchemie plant where a plaque was unveiled.

Oxea, as created by Advent, has a broad portfolio of more than 70 oxo chemicals with operations in the Americas, Europe and Asia.

GLOBAL PLAYER
The link to Oman will aid Oxea’s expansion strategy, especially in growth markets in Asia while OOC would benefit from Oxea’s reach into European and North America markets. Oxea started basic engineering for a 2-ethylhexanol (2-EH) and an n-propanol unit at its production facility in Bay City, Texas, US this year. Both units are scheduled to be on stream in late 2016.

Oxea produces 2-EH in Oberhausen, Germany, and this will be its first plant in North America. It already produces n-propanol at Bay City.

The basic engineering work in the US will be used for the construction of the company’s Asian oxo chemicals platform in Duqm, Oman.

About 52% of OOC’s portfolio consists of local investments with the remaining being international. While the company aims to maintain a strong local presence, it is also exploring strategic international investments and partnerships in a variety of sectors, noted de Fitte.

“In a similar vein to the Oxea acquisition, future petrochemicals foreign investments will be geared towards increasing our technological footprint and leveraging this with Oman’s strategic location in order to competitively engage high-growth emerging markets and complement integration of our value chains,” de Fitte said.

As Advent relinquished control of Oxea, it complimented Oxea management on creating a competitive business.

“We are convinced that the strengths and objectives of OOC and Oxea are highly complementary and that both sides will benefit from the partnership,” said managing director and head of Advent International’s chemical practice, Ronald Ayles.

“We wish Oxea all the best as it enters into a new phase of its corporate development,” he added.

Download a pdf of The ICIS Top M&A here.

By Nigel Davis