BP, Indian Oil in Acetic Acid JV - Analyst Blog

BP Plc ( BP ) and state-owned Indian Oil Corporation have come together for a 50:50 joint venture (JV) to construct an acetic acid plant in western India.

The two firms signed a memorandum of understanding to invest in a one million ton per annum acetic plant together with allied gassification facilities for the production of synthesis gas. The unit will be set up in the state of Gujarat.

The Cativa XL technology of BP would be used in the proposed plant, while the gassification facilities would employ petroleum coke feedstock from Indian Oil. The produce will add value to BP's portfolio of products and will substitute India's Acetic Acid imports.

In order to validate the exact configuration of the project, a joint feasibility study is in progress. The project is expected to come online in 2015. The final output from the plant has uses in pharmaceuticals petrochemicals and paints, among others.

According to sources, India's current supply-demand gap for acetic acid is nearly 600,000 tons, with only Gujarat Narmada Valley Fertilisers Company having a production capacity of 160,000 tons per annum.

As a result, both BP and Indian Oil will be vastly benefited when the plant becomes operational as demand for acetic acid is likely to be high. Such foresight raises optimism on BP's future growth.

Earlier in the year, BP had signed a deal with yet another Indian company- Reliance Industries. Through the deal, Europe's second-biggest oil company behind Royal Dutch Shell Plc ( RDS.A ) had gained a 30% stake in 23 oil and gas blocks owned by its partner. The UKgiant had to shell out approximately $9 billion inclusive of future performance-related payments.

Moreover, we believe BP's new strategy of active portfolio management, increased exploration activity and refining and marketing repositioning will create value for shareholders. The company's position will be further enhanced by a stronger oil price environment and a concentrated upstream portfolio.

BP has a Zacks #3 Rank, which is equivalent to a Hold rating for a period of one to three months. For the long term, we recommend a Neutral rating on the company.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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