Post by : Saif Rahman

In a significant shift, BP has finalized a deal to transfer a 65% ownership of its renowned Castrol lubricants division to U.S. investment firm Stonepeak for approximately $6 billion. This transaction represents one of BP’s largest divestitures in recent history and is crucial to the company's efforts to lower its debt and enhance financial results.

The deal estimates Castrol’s value at $10.1 billion. Following the agreement, BP will retain a 35% stake in a newly formed partnership with Stonepeak, with an option to divest this remaining share after a two-year lock-in period. This move is part of BP's initiative to streamline its operations and refocus on oil and gas, amidst challenges in share performance relative to competitors.

Funds garnered from this deal are earmarked primarily for debt reduction, with about $800 million allocated for expedited dividend payouts to shareholders. BP aims to offload $20 billion in assets by 2027, targeting a reduction of its net debt from $26 billion to a range between $14 billion and $18 billion.

Post-announcement, BP’s stock experienced a rise of over 1%, indicating investor satisfaction with the decision. Currently, BP has either completed or announced asset sales totaling around $11 billion, surpassing the halfway mark toward its divestment goals.

Established over a century ago, Castrol stands as one of the most recognized lubricant brands globally. Earlier this year, BP initiated a review of Castrol's future as part of a larger strategic overhaul, reducing its focus on renewable energy and pivoting back to traditional oil and gas ventures to enhance profitability.

Stonepeak confirmed that the Canada Pension Plan Investment Board will invest up to $1.05 billion as part of this deal, providing an indirect stake in Castrol. Initial discussions between BP and Stonepeak surfaced in November, with the sale process activating earlier in the year amid interest from various investment entities.

This transaction unfolds during a transitional phase for BP, as Meg O’Neill has been appointed as the new chief executive. The incoming chair emphasized the need for BP to simplify its operations to swiftly enhance returns.

Through this divestment, BP is clarifying its intent to bolster its financial standing, reward its investors, and refine its operational focus. The Castrol sale is anticipated to play a pivotal role in charting the company's upcoming strategic pathway.

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