Potential BP China petchems JV sale could buoy capital – analyst

(Clarification: recasts stating BP’s share price)

LONDON (ICIS)–The potential sale of UK energy major BP’s 50% stake in China petrochemical business Secco could buoy capital reserves during a period of low oil prices and heavy quarterly losses, an energy analyst at London-based Canaccord Genuity said on Tuesday.

BP’s shares were up 1.3% in Tuesday morning trading, on a report in Reuters that the company is considering offloading its stake in the business, which could fetch up to $3bn, according to Canaccord Genuity’s energy analyst Alex Brooks

BP is reportedly looking to divest businesses where it lacks control as the company moves to tighten capital expenditure in response to falling oil prices. As joint venture partner, Sinopec would have first refusal on any option to purchase the stake.

Canaccord Genuity’s energy analyst Alex Brooks said Sinopec would likely to be the acquirer for BP’s 50% stake, and pointed to the cash needs the oil major has as a consequence of falling crude prices since mid-2014.

BP said in February it would cut 3,000 jobs in its downstream operations due to persistent low crude oil prices, the same day it had presented its full-year 2015 financial results with a net loss of $6.48bn although the petrochemicals division had managed to reverse $25m losses posted in 2014, with profit at $36m.

“Does it make sense exiting [the Sinopec joint venture]? Like the rest of the oil majors, BP is to some extent capital constrained – if something is sellable for an attractive price, it is, at least in principle, available,” said Brooks.

“If they think their 50% [stake] is worth $3bn then presumably they are convinced at some point it will be profitable, whether that’s imminent or not.”

According to Reuters, Sinopec would be studying BP’s exit plan, although a spokesman cited by the news agency said a decision on a potential acquisition had not been taken yet.

The report went on to say sources had established the potential selling price for the 50% Secco stake at between $2bn and $3bn.

According to Secco’s website, the petrochemical site in Shanghai has a 1.1m tonnes/year ethylene cracker and produces 650,000 tonnes/year of styrene, 300,000 tonnes/year of polystyrene (PS), 600,000 tonnes/year of polyethylene (PE), 250,000 tonnes/year of polypropylene (PP) and 520,000 tonnes/year of acrylonitrile (ACN), among other chemicals.

BP shares have taken a battering since mid-2014, parallel to the fall in crude oil prices (see graph). From a price of 520 pence on 23 June 2014, the firm’s stock closed on 8 August at 422.15 pence, a decrease of 19%.

The stock, however, has recovered from its three-year low reached on 23 September 2015, when the shares closed as low as 340.20 pence.

BP three-year share performance
Aug 2014 – Aug 2016
Source: BP