MOSCOW (MRC) -- Weir Group Plc announced it had agreed to sell its oil and gas division to US heavy equipment maker Caterpillar Inc for USD405 million in cash, as the engineering company focuses on its mining business, as per Hydrocarbonprocessing.
Shares of Weir surged 22.5% to 1,568p, on track for their best day in more than 20 years.
The deal, which follows a collapse in global oil prices and a swathe of bankruptcies in the sector, will have a USD70 million US cash tax benefit for Weir, the company said.
In July, Illinois-based Caterpillar, considered a bellwether for economic activity, warned of continued sluggishness in equipment sales due to the coronavirus pandemic, with its main customers in highly cyclical businesses such as mining and construction.
In a separate statement, Caterpillar said the deal covered more than 40 Weir Oil & Gas manufacturing and services locations and about 2,000 employees.
“This acquisition will expand our offerings to one of the broadest product lines in the well service industry,” Joe Creed, Vice President of Caterpillar’s Oil & Gas and Marine Division said.
The transaction includes Weir’s North American and international oil and gas operations, comprising its Pressure Pumping and Pressure Control business units, and associated after-market spares among other things.
Weir Group Chief Executive Officer Jon Stanton said the deal was a major milestone as the group transforms into a premium mining technology business.
The deal is expected to close by the end of the year and Weir said it would help strengthen its balance sheet for future investments.
Jefferies analyst Andy Douglas said the deal removes a “problem child”, leaving Weir with a “very strong” business. He added that the price was higher than Jeffries had expected.
Weir said its oil and gas business had gross assets of $966.61 million at June 30.
As MRC wrote before, global oil demand may have already peaked, according to BP's latest long-term energy outlook, as the COVID-19 pandemic kicks the world economy onto a weaker growth trajectory and accelerates the shift to cleaner fuels.
Earlier this year, BP said the deadly coronavirus outbreak could cut global oil demand growth by 40 per cent in 2020, putting pressure on Opec producers and Russia to curb supplies to keep prices in check.
And in September 2019, six world's major petrochemical companies in Flanders, Belgium, North Rhine-Westphalia, Germany, and the Netherlands (Trilateral Region) announced the creation of a consortium to jointly investigate how naphtha or gas steam crackers could be operated using renewable electricity instead of fossil fuels. The Cracker of the Future consortium, which includes BASF, Borealis, BP, LyondellBasell, SABIC and Total, aims to produce base chemicals while also significantly reducing carbon emissions. The companies agreed to invest in R&D and knowledge sharing as they assess the possibility of transitioning their base chemical production to renewable electricity.
Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).
According to MRC's ScanPlast report, Russia's overall PE production totalled 1,712,400 tonnes in the first seven months of 2020, up by 58% year on year. Linear low density polyethylene (LLDPE) accounted for the greatest increase in the output. At the same time, overall PP production in Russia increased in January-July 2020 by 24% year on year to 1,063,700 tonne. ZapSibNeftekhim accounted for the main increase in the output.
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