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June 21, 2019 12:16 PM

Report: CP Chem bidding for Nova in major petrochemical deal

Frank Esposito
Senior Staff Reporter
Plastics News Staff
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  • Deal would confirm the trend of Big Oil diversifying downstream
  • Other PE suppliers may be interested in Nova
  • Firms have complementary products, geographic footprints and technology
  • Plastics News photo by Joe Wilssens
    John Thayer, Nova Chemicals' polyethylene senior vice president, at NPE2018. According to a report, Chevron Phillips Chemical has made a bid for the chemical giant.

    Chevron Phillips Chemical's rumored bid for Nova Chemicals Corp. could have a major impact on North American polyethylene resin markets.

    Reuters reported June 20 that CP Chem, based in the Woodlands, Texas, was bidding more than $15 billion for Nova of Calgary, Alberta. Nova officials declined to comment on the story. Officials with CP Chem could not be reached for comment.

    The story quoted unnamed sources who said that Nova owner Mubadala Investment Co. of Abu Dhabi has been exploring a sale since early 2019. They added that there's "no certainty" that state-owned Mubadala will accept the CP Chem offer.

    Market analyst Phil Karig said that, with all of the attention given to new shale gas driven PE capacity expansions, it's sometimes easy to forget that adding large amounts of existing capacity through acquisitions "can quickly alter the competitive landscape."

    "Other PE suppliers looking to leapfrog the competition will certainly have an interest in Nova," said Karig, managing director of Mathelin Bay Associates LLC in St. Louis. "Which is why it would not be surprising if bids from other strategic buyers quickly emerge or if purely financial buyers looking to make an investment in the sector also step forward."

    Wood Mackenzie Chemicals

    Chitalia

    Ashish Chitalia, principal analyst at global consulting firm Wood Mackenzie, said CP Chem and Nova have complementary products, geographic footprints and technology.

    "The petrochemical market is consolidating, with the main players – ExxonMobil, Saudi Aramco, LyondellBasell, Dow -  expanding organically or through M&A," he said. "Since 2018, many petrochemical companies are under pressure owing to the slow economic growth outlook, the credit crunch in India/China, US-China trade war and the plastic backlash.

    "The deal with Nova Chemicals would allow Chevron and Phillips 66 to diversify further into this market while increasing competitiveness and market reach. North American ethane feedstock advantage makes the region an ideal location for acquisitions/expansions in the ethylene-polyethylene sector."
     
    "Such a deal would confirm the trend of Big Oil diversifying further into downstream, viewing the petrochemical sector as a growth engine and a means for margin security," Chitalia said.

    He added that with up to 1.5 millions of merchant ethylene available to CP Chem after a Nova Chemicals acquisition, "the company would be in a strong position to leverage the second expansion wave on the Gulf coast."

    CP Chem is a 50-50 joint venture between oil and energy firms Chevron Corp. and Phillips 66. The business was founded in 2000 and is a major producer of high density, low density and linear low density PE, as well as other petrochemicals.

    CP Chem's Performance Pipe unit also is one of North America's largest producers of HDPE pipe. CP Chem has annual sales of around $12 billion.

    Nova also produces all three major PE grades, as well as expandable polystyrene, specialty styrenics and other petrochemicals. Nova had been a public firm before being acquired for $500 million by state-owned International Petroleum Investment Co. (IPIC) of Abu Dhabi in 2009. Abu Dhabi then placed Nova with Mubadala in 2017.

    Nova employs almost 3,000 worldwide and has annual sales of $4.5 billion.

    Both CP Chem and Nova have expanded their PE resin capacity in recent years to take advantage of new supplies of low-priced natural gas feedstock in North America. CP Chem has added more than 2 billion pounds of PE capacity in Old Ocean, Texas.

    Nova has added PE resin capacity at sites in Alberta and has plans to do so in Ontario. The firm also is part of the Bayport Polymers joint venture that will open a new PE unit in Bayport, Texas, in 2021.

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