BP ON Monday (Sep 16) announced plans to sell its onshore wind business in the US as the oil and gas giant scales back its exposure to renewables and focuses on its core business.
Earlier in the day, the company also said it will offload part of its stake in a key natural gas pipeline to New York-based investment firm Apollo Global Management in a deal valued at US$1 billion.
The separate deals highlight the challenges facing BP as it seeks to lure investors. The company has committed to boosting dividends and buying back billions in stock this year, even as it carries more debt than some of its industry peers. Meanwhile, the company – which makes most of its money in fossil fuels – is trying to navigate a collapse in oil prices amid tepid demand.
BP shares are trading near a two-year low, though they edged higher on Monday.
The company will shortly begin the process of selling BP Wind Energy so that it can continue “to simplify our portfolio and focus on value”, it said. BP currently has stakes in 10 operating wind farms in the US. It plans to focus instead on its solar arm, Lightsource BP.
The move marks an abrupt turn in the company’s renewable strategy. Less than a year ago, as it upgraded wind turbines in Indiana, it said: “Onshore wind is critical to BP’s renewables & power business, one of the company’s five transition growth engines.”
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US onshore wind development has flatlined in recent years, with installations slowed by high interest rates, slow equipment delivery and permitting and grid connection hurdles, BloombergNEF (BNEF) said in a June report. Project delays and other hurdles caused BNEF to cut its projections for new onshore wind by 22 per cent to 2030, as factors such as low power prices mean developers will choose not to build some projects even after securing all permits.
Core business
BP is “preparing for the narrative shift”, said Biraj Borkhataria, head of European energy research at RBC Europe. It’s “shifting capital away from transition themes and back to the core business”, he added, noting that rival Shell has pursued a similar strategy.
Last year, BP said it will cut oil and gas output more slowly this decade after the supply disruption sparked by Russia’s invasion of Ukraine sent oil and gas profits soaring to record levels. But now, the industry is coping with a 20 per cent slump in crude prices from this year’s peak.
The pipeline deal with Apollo could provide BP with some room to manoeuvre as it seeks to reallocate resources. The US-based investor will buy a non-controlling interest in a BP subsidiary that holds a 20 per cent stake in the Trans Adriatic Pipeline, part of a network that brings gas from the Caspian region to southern Europe. It allows BP to main its governance over the entity. BLOOMBERG
