BP to sell stake in Chinese joint venture

Aug 09, 2016 12:00 AM

BP, the UK energy group, is planning to sell one of its biggest Chinese investments, by disposing of its 50 per cent stake in the Secco petrochemicals plant near Shanghai.

BP is the latest western oil company to curtail activity in China, as energy groups reel from low crude and petrochemical prices. China’s slow liberalisation of its energy sector has disappointed investors.

It also comes amid the UK company’s plans to sell between $3bn and $5bn worth of assets this year. BP has made more than $50bn of divestments since 2011 to help pay legal and clean-up bills following the 2010 Gulf of Mexico oil spill.

State-controlled Sinopec, which also has a 50 per cent stake in the Secco joint venture, said it was “researching” BP’s planned sale.

“We haven’t made any decision to buy or not,” said Sinopec. BP declined to comment.

One analyst, who declined to be named, valued BP’s chemicals business, which is largely Asia focused, at $3bn. This would imply that BP could secure $1bn-$2bn for its Secco stake, the analyst added.

The Secco plant started operations about 10 years ago after $2.7bn of investment by BP and Sinopec. It makes products including ethylene, which is a building block for plastics.

While BP appears keen to scale back its activity in China, it has no plans to exit the country.

The UK company has stakes in several big Chinese petrochemical sites as well as a liquefied natural gas terminal. It does not have any oil or gas production in the country.

Other western oil companies aiming to reduce their presence in China include Total, which is seeking to sell its stake in the Wepec refinery in the north-east of the country. Royal Dutch Shell has shelved a shale gas joint venture in the south-west.

The petrochemical industry is now struggling with overcapacity. “Asia is awash with petrochemicals supplies and in China, even though there is ample demand, the oversupply is translating into lower domestic prices,” said Michal Meidan, analyst at Energy Aspects.

“For BP, that must focus on costs in the current oil price cycle, this probably makes sense.”

While western energy companies have been retreating from Chinese oil investments, Middle Eastern and Russian groups are keen on projects in the country.

Saudi Aramco, Saudi Arabia’s state-controlled oil company, has held on-off talks with China National Petroleum Corporation, parent of PetroChina, about buying a stake in its new refinery in Kunming. No deal has been finalised. Saudi Aramco already holds a stake in a Quanzhou refinery.

Kuwait Petroleum Corp and National Iranian Oil Company have been in talks about investing in Chinese refineries.

Rosneft, Russia’s state-controlled oil company, agreed in 2013 to establish a refining joint venture in Tianjin, the port city near Beijing.

Last year ChemChina, the state-controlled chemicals and refining conglomerate, offered a stake in some of its refineries to Rosneft.

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