BP’s Castrol Stake Sale Raises Debt Relief Hopes but Sparks Cash Flow Concerns

BP has agreed to sell a 65% stake in its Castrol lubricants business to infrastructure investor Stonepeak, valuing the unit at an enterprise value of $10 billion. The move is part of BP’s broader asset divestment strategy aimed at reducing debt and strengthening its balance sheet amid ongoing pressure in the global energy sector.

The transaction is expected to generate around $6 billion in net proceeds for BP. This includes approximately $0.8 billion from the prepayment of future dividend income linked to BP’s remaining 35% stake. BP has confirmed that all proceeds from the Castrol sale will be used to pay down net debt, aligning with its goal of improving financial resilience.

However, analysts remain divided on the long-term implications of the deal. Bank of America analyst Christopher Kuplent warned that despite the significant cash inflow, the disposal could result in more than 10% downside risk to BP’s share price. He noted that Castrol’s implied valuation is close to BP’s internal net present value estimates, suggesting limited upside. Kuplent also described the deal as dilutive to BP’s future cash flow, prompting the bank to cut its earnings per share forecasts from 2027 onward by about 5% and raise its estimated breakeven oil price by roughly $3 per barrel.

Kuplent added that while BP’s $20 billion divestment program is underway, with more than $4 billion expected by the end of 2025 and a further $6 billion by end-2026, adjusted gearing is still projected to remain near 40%. He cautioned that selling assets with strong free cash flow could weaken BP’s earnings quality and increase sensitivity to oil price fluctuations.

RBC Capital Markets analyst Biraj Borkhataria took a more balanced view but also questioned the strategic rationale of selling Castrol, describing it as a highly cash-generative, low-capital-intensity business. While accelerated debt reduction may support near-term financial metrics, he warned that it could come at the expense of medium-term cash flows and long-term dividend sustainability. Borkhataria suggested that reducing share buybacks might have been a more sustainable alternative.

Following regulatory approvals, BP expects the deal to close by the end of 2026. Castrol will then operate as a joint venture, with Stonepeak holding distribution preference, limiting BP’s short- to medium-term earnings contribution. The sale brings BP’s completed and announced divestments to roughly $11 billion, just over halfway toward its $20 billion target.