BP sells majority stake in Castrol to Stonepeak for $10bn

BP has confirmed the sale of a majority stake in its Castrol lubricants division to US infrastructure investment firm Stonepeak in a deal that values the business at about $10bn including debt.

The sale is part of the energy giant's plant to offload $20bn in assets by 2027 after pressure from activist hedge fund Elliott Management, which wants the company to cut costs and lower debt. It started the sale process for Castrol in February.

BP expects net proceeds of around $6bn, including $0.8bn for the pre-payment of future dividend income over the short to medium term on its retained stake and other adjustments. The cash will be used to pay down debt.

After completion of the transaction - expected at the end of next year - a new joint venture will be formed with BP keeping 35% under a two-year lock-up period before it has the option to sell its stake in Castrol.

BP last week announced that chief executive Murray Auchincloss had stepped down after less than two years in the role, to be replaced by the head of Woodside Energy, Meg O’Neill.

Auchincloss confirmed he had decided to leave after the company appointed Albert Manifold as chair in the summer.

He became interim chief executive in September 2023, following the abrupt departure of his predecessor Bernard Looney. Auchincloss took on the role on a permanent basis in January 2024. One of his first decisions was to bow to shareholder pressure and reverse moves by Looney to transform BP into a green energy giant.

Manifold hinted at the time that further change could yet be on the cards, however, with the appointment of O’Neill, the first outsider to lead BP in its 116-year history.

"The board believes this transition creates an opportunity to accelerate our strategic vision to become a simpler, leaner and more profitable company."

O’Neill, who has been chief executive of the Australian oil and gas firm since 2021, will also be the first woman to lead BP on a permanent basis.

AJ Bell investment director Russ Mould said: “Given a healthy dose of speculation that the price tag would be on the low side, the market seems fairly happy with the outcome. The significant proceeds from the transaction will allow BP to make a decent dent in its onerous borrowings pile."

“The next key test for BP, which continues to have its feet held to the fire by activist investor Elliott, is a strategic review expected in February. Recently departed boss Murray Auchincloss arguably never recovered from his own strategic reset in February this year which fell short of most investors’ expectations, so BP cannot afford a similar disappointment this time around."

“Unlike Auchincloss, freshly appointed chair Albert Manifold and incoming CEO Meg O’Neill are outsiders. This may make it easier to deliver radical change at BP after its failed effort to transform into a green energy powerhouse.”

Reporting by Frank Prenesti for Sharecast.com