Ecolab has announced its intention to spin off its upstream energy businesses into a standalone, public company.

The businesses, which have annual sales of around $2.4 billion, comprise two units –oilfield chemicals and the Wellchem drilling and well completion chemical division. Ecolab said it will retain its downstream business, which serves refineries and petrochemical plants.

Douglas Baker Jr, Ecolab’s chairman and CEO, said the proposed spin-off will create two best-in-class and standalone companies with distinct business models and an increased focus on upstream oil and gas markets.

“Upstream energy is an excellent business, but one with a business model that has become increasingly different from our other Ecolab businesses,” Baker said. “As unconventional onshore has grown, our two upstream businesses have become more aligned and appropriately evolved into more specialty chemical-type businesses, which require increasingly different operating disciplines and expertise.”

The transaction is expected to be a tax-free spin-off to US shareholders for US federal income tax purposes. The St. Paul-headquartered company expects the separation to complete in mid-2020, subject to certain closing conditions as well as the approval of its board of directors.

The new standalone company is expected to raise new debt, with the proceeds paid as a dividend to Ecolab, which could use it to repurchase shares and/or reduce debt. The leadership and name of the new company will be finalized as the separation process progresses.

Post separation, Ecolab, which will have pro forma 2018 sales of about $12.2 billion, will continue to focus on its core platforms serving the hygiene, food safety and industrial water markets.