The deal, announced today, values Castrol at US$10.1 billion, and marks the British company’s most ambitious asset sale so far in its efforts to streamline operations and scale back its renewable energy investments after years of lagging rivals in share performance.
BP will retain a 35% stake in a new joint venture with Stonepeak, which it can sell after a two-year lock-in period.
Shares in BP gained more than 1% today following the announcement before slipping to trade fractionally lower as of 11.47am.
“While the deal values Castrol at about US$10 billion, the enterprise value falls to roughly US$8 billion after adjusting for minority interests and debt-like obligations,” RBC analysts said in a note today.
“We continue to question the rationale (beyond the headline multiple) of selling this highly cash generative, low volatility and low capital intensity asset, as ultimately this is detrimental to the long term dividend sustainability and earnings quality of the business,” RBC analysts said in the note.
“Accelerated dividends now will help reduce debt, but clearly at the expense of medium term cash flows,” analysts said.
The sale, which includes US$800 million for accelerated dividend payments, comes after BP put the century-old lubricants unit under review earlier this year as part of a broader strategy to focus on its core oil and gas business.
“BP will use the sale proceeds to reduce debt. BP expects the deal to complete by the end of 2026,” it said.
The oil major has vowed to sell US$20 billion worth of assets to help slash its net debt from US$26 billion to between US$14 billion and US$18 billion by the end of 2027.
After the Castrol deal, BP’s completed and announced divestment proceeds total around US$11 billion.
In a separate statement, Stonepeak said the Canada Pension Plan Investment Board will invest up to US$1.05 billion as part of the deal and gain an indirect stake in Castrol.
Stonepeak, an infrastructure-focused private equity firm, has investments in hard assets such as energy businesses and real estate and seeks assets that offer growth over the long-term.
Private equity buyers have around US$2 trillion in capital raised from investors and not committed to specific investments that they are keen to deploy, according to S&P Global.
Recently private equity firms have focused on divestments by conglomerates looking to focus on their core businesses.
Reuters reported in November that BP was in talks with Stonepeak about selling Castrol.
The Wall Street Journal and the Financial Times first reported details of the deal late yesterday.
Castrol’s sale process began earlier this year. In September, Stonepeak and private equity firm One Rock submitted bids for the unit, Reuters previously reported, citing sources.
BP last week appointed Woodside Energy’s Meg O’Neill as its next CEO, taking over from Murray Auchincloss.
In October, new BP chair Albert Manifold told employees that the group’s portfolio was “overly complex” and it needed to shift focus back to oil and gas faster.
In August, BP had said it would launch a review of how best to develop and monetise its oil and gas production assets and consider more cost cuts to boost shareholder returns.