BP planning chemicals spin-off

LORD Browne, BP's chief executive, is taking the axe to half of the oil giant's underperforming petrochemicals business by lining up $7bn (£3.92bn) of the division's operating assets for a potential float next year.

In yet another sign of his determination to stay ahead of the pack, BP plans to group its olefins and derivatives (O&D) plants into a stand-alone business. This will then be sold or spun off in London or New York in the second half of 2005.

Bruce Evers, analyst at Investec, said: 'If you're not best in class, you're out.'

The O&D business will be run by Ralph Alexander, head of BP's gas, power and renewables operation and seen by some as Browne's heir apparent.

Today's move, which came as BP reported pro-forma profits up 17% at $4.7bn for the first three months of the year, was flagged by the group at a strategy briefing last month. It said then that underperforming parts of the chemicals portfolio would essentially be run for cash and, if possible, sold off.

Today, Browne said: 'We have now concluded that divesting O&D, perhaps by means of an IPO - subject to market conditions and necessary consents - is likely to deliver the best returns to our shareholders and to be in the best long-term interests of the O&D business itself.'

The business employs 7,500 people in 24 locations around the world, including Grangemouth in Scotland.

Olefins products - ethylene and propylene - and their derivatives are used to make a wide variety of plastic goods, including food containers and automotive parts.

Chemicals has been the one blot on Browne's landscape as he rebuilds BP for the future.

A tenth of every barrel of oil BP brings out of the ground goes into its petrochemicals arm, but despite $13bn of operating assets, it earned only $600m in profits in 2003.

Analysts believe the chunk to be sold off may only command a market value of $2.4bn, as BP will keep the better performing parts.

Today's move came as BP's financial performance over the first quarter set the bar for its troubled rival Shell, which reports its own figures on Thursday. The profits beat the most optimistic analysts' expectations, and BP also showed that oil and gas production rose 11% to four million barrels a day - ever closer to Shell's output.

A one-off gain of $1.2bn on the disposal of minority stakes in PetroChina and Sinopec boosted BP's profits, but these had already been signalled to the City.

BP shares rose 1 3/4p to 489 3/4p.