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Companies often make statements that they later wish they could delete. Take blood pressure. four years ago declared tthat the “attractive” benefits of offshore wind energy would endure “for decades to come.” Now it seems the European oil major can’t swallow its words fast enough.
On Monday, BP said it was putting its offshore wind assets into a jointly owned business with Japan’s largest power generation company, Jera. Its British rival Shell has also said will not start any new offshore wind energy plans as the sector struggles to recover from a crisis that has devastated returns.
As embarrassing as the withdrawal may be, for BP the move is a good first step in addressing a identity crisis That’s been building since 2020, when former CEO Bernard Looney set out a big energy transition plan.
First, the move eases concerns about how much capital spending BP will have to commit to offshore wind over the rest of the decade.
Investors had braced for that figure to reach a third of BP’s $30 billion renewables and hydrogen investment budget during that time. But BP will contribute a maximum of $3.25 billion in capital expenditures to the joint business. Given that its spending on offshore wind in 2023 and 2024 has been less than $2 billion, its total outlay will be about $5 billion less than investors feared.
Another attraction is that the joint business, which will own a more attractive mix of assets than BP had on its own, would effectively be pre-packaged for a sale when the renewables market improves. The Italian Eni has already had some success in selling stakes in its energy transition “satellite businesses.” with attractive valuations.
But for current BP CEO Murray Auchincloss, this only scratches the surface. Investors remain fixated on BP’s borrowings (unsurprisingly, as it is expected to end the year as the most indebted European oil major) and the extent to which it can sustain share buybacks.
In February, BP promised share buybacks of “at least” $14 billion between 2024 and 2025. But the price of Brent crude has fallen 8.5% so far this year, casting serious doubts on whether the The remaining $7 billion of buybacks will be possible next year. year. Bank of America analyst Christopher Kuplent expects Auchincloss to reveal a “comprehensive rebalancing” in BP’s annual results in February, with share buybacks even falling to zero.
Four years ago, BP might have hoped its strategy would go down in corporate history as a blueprint for navigating the energy transition. On the other hand, it will be fortunate that in the years to come no one will be able to remember it.