BP has announced the sale of its US onshore wind business to LS Power, marking a significant pivot back to its core oil and gas operations. This divestment is part of a broader strategy to streamline the company and improve its financial performance, following investor pressure and a challenging period for its renewable energy ventures.
BP’s strategic shift: Back to black gold
BP’s decision to offload its US onshore wind assets, comprising 10 wind farms with a combined gross generating capacity of 1.7 gigawatts, signals a clear re-prioritisation towards fossil fuels. This move comes after a period where the company’s ambitious green agenda failed to yield the desired financial returns, contributing to a slump in its share price. The sale to LS Power’s Clearlight Energy, for an undisclosed sum, is part of BP’s target to divest $20 billion worth of assets by 2027.
Why the change of course?
Several factors appear to have influenced BP’s strategic reversal:
- Underperformance of renewables: Despite significant investment, BP’s renewable energy ventures, particularly its onshore wind business, have not met financial expectations. The company stated it was "no longer the best owners" to advance the wind business.
- Investor pressure: BP has faced considerable criticism from investors regarding its underperformance and sluggish share price. Activist hedge fund Elliott Management, for instance, has agitated for strategic changes.
- Focus on core business: CEO Murray Auchincloss’s plan aims to simplify and focus the business, with a renewed emphasis on oil and gas production to shore up balance sheets and increase cash flow.
- Leadership changes: The departure of Giulia Chierchia, a key architect of BP’s sustainability strategy, further underscores the shift away from its previous green ambitions.
Key takeaways
- BP is selling its US onshore wind business to LS Power, comprising 10 wind farms capable of powering over 500,000 US homes.
- The sale is part of BP’s broader strategy to divest $20 billion in assets by 2027 and pivot back to oil and gas.
- The move is driven by investor pressure, underperformance of renewable assets, and a desire to simplify the business.
- The value of the deal was not disclosed, but analysts suggest it may be lower than previous valuations for BP’s wind assets.
Financial implications and future outlook
This divestment is a crucial step in Auchincloss’s plan to achieve $3 billion to $4 billion in disposals by the end of this year, with $1.5 billion already secured through previous deals, including the sale of a stake in the TANAP gas pipeline. While the exact value of the wind business sale remains undisclosed, some analysts speculate it might be less than typical multiples for onshore wind assets, suggesting the need for further disposals to meet the company’s targets. The market reacted positively, with BP’s shares rising by 1.9% following the announcement, aligning with a general rise in oil prices.
Sources
- Client Challenge, Financial Times.
- BP agrees to sell US onshore wind business as it shifts back to oil | BP, The Guardian.
- BP to sell US onshore wind business to LS Power for undisclosed sum, Reuters.
