PetroChina offers INEOS $1B for a 50% share in its European refining business; two joint ventures result

PetroChina International (London) Co. Ltd. submitted an irrevocable offer to INEOS of US$1.015 billion for a 50% share in its European refining business. This business includes the refineries at Grangemouth in Scotland and Lavéra in France. The partnership with PetroChina will comprise a trading joint venture and a refining joint venture. A new Swiss company will be incorporated to hold the INEOS investment. The two joint ventures will be operated independently of the INEOS Group.

INEOS and PetroChina will now work towards forming the proposed joint ventures in Q2 2011.

INEOS said that the transaction will significantly enhance its financial position. Group leverage was 4.3x EBITDA at the end of September 2010 and is expected to reduce to around 3.5x EBITDA following completion.

This offer is an important step on the way to INEOS forming a joint venture with PetroChina. When completed we will have a strategic partner with significant refining expertise that is integrated upstream with very strong equity crude positions. This agreement allows us to remain fully committed to our refining business and presents us with an opportunity to further develop our technology business in China and beyond. As we move towards completing this joint venture, we now intend to evaluate our future refinancing options for the group over the first half of 2011.

—Jim Ratcliffe, chairman of INEOS

This deal will help create a strategic partnership between the two companies, INEOS said, as well as improve the long-term sustainability of the INEOS refineries, enhance security of supply for customers and secure jobs and skills in both the UK and France.

The proposed joint venture is consistent with PetroChina’s strategy of building a broader business platform in Europe and of becoming a leading international energy company. The geographic location and production capabilities of the INEOS refineries are favorable as both refineries are well located in terms of markets and access to raw materials and both have a significant production bias towards diesel, the fastest growing refined fuel in Europe.

The Grangemouth refinery processes around 210,000 barrels of crude oil per day and provides fuel to Scotland, Northern England and Northern Ireland.

The Grangemouth site is integrated into INEOS’s downstream petrochemical production and remain strategic to its long-term business.

Welcoming the announcement Cllr Angus MacDonald said:

“It is clear that this multi-billion pound joint venture will be of enormous long-term benefit to Grangemouth and Scotland, resulting in significant investment and long-term growth and sustainability at the plant.

"Significant investment is required to the refinery's infrastructure and PetroChina's investment will secure 2,000 jobs and will help to ensure the plant is upgraded.

“While the investment from China may be of concern to some we have to be realistic and accept that we live in a global economy and foreign investment has to be welcomed as we pull ourselves out of Labour's recession. It is worth stressing that the intake of North Sea oil and the pipeline network will still be under the control of BP Exploration in Grangemouth, who will sell oil for processing to the Ineos/PetroChina refinery.”

Copyright © Angus MacDonald MSP 2017

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