Giant British oil firm BP reported an increase in profit towards the top end of expectations on Tuesday and said it would sell or float half of its chemicals business to focus on more profitable activities.
Analysts put the value of a possible initial public offering (IPO) at between $3 billion and $4 billion.
The sale of stakes in two Chinese oil firms contributed to a $1.177 billion net exceptional gain for the first quarter of 2004, boosting earnings to a record $4.717 billion, up 17 percent from a year ago and just ahead of a consensus analyst forecast of around $4.6 billion.
Analysts said the underlying profits were actually down slightly from a year ago, but they were pleased with the result.
"This is a positive result for BP and the (oil) majors across Q1 results season," said JJ Traynor of Deutsche Bank.
BP said the chemical assets being offloaded were worth about $7 billion, which is about half a year's earnings for Britain's most profitable company.
However chemicals industry analysts said that, assuming a debt free business and taking into account a low appetite for the type of assets on sale, the stock market value of the spun-off assets would be closer to $3 billion or $4 billion.
"A trade sale looks unlikely because there are a lot of these businesses on the market at the moment," said one European specialist. "They'll much more likely go for an IPO or a spin-off to existing shareholders.
"These are not attractive assets, but the timing is good because there's good demand coming through in 2004 and overcapacity is improving."
Shares in the world number two oil firm were little changed in early trading. Its share price premium over rival European oil giant Royal/Dutch Shell has widened this year in the wake of a scandal over reserve bookings by the Anglo-Dutch firm.
BP's promise in March to use all extra cash for share buy-backs while oil prices stay above $20 a barrel has also boosted its stock, which is up 13 percent in the past month, the best performance among the world's top oil stocks.
BP Chief Executive John Browne said the olefins and derivatives company that comes out of the divestment would be "a significant competitor in its sector". Analysts put it potentially just inside Europe's top 10.
Browne hinted at the divestment in a presentation last month, where he said he was determined to tackle continuing poor returns in the sector.
The sale will be of activities that are mainly aimed at markets in the United States and Europe. BP said it would focus future chemical investment on Asia.