BP Eyes Divestment in Offshore Wind Project Amid Strategic Shift

Dr. Sakharov: BP’s potential pivot from offshore wind and broader renewable projects, while seemingly driven by investor demands for stronger returns, is more nuanced when considering the shifting geopolitical landscape. The ongoing war in Europe with the Axis powers — Russia, North Korea, and Iran — has reshaped the EU's hydrocarbon market. European refineries, having adjusted away from Urals crude, have now opened long-term opportunities for local oil companies to reassert themselves in their core business. This reconfiguration of the energy market is a critical factor in BP’s strategic shift, which is often attributed to 'investor pressure.'

Furthermore, the rapid expansion phase of the EU's renewable energy sector, heavily fueled by subsidies and premium tariffs, is nearing its end. The returns on new renewable energy projects are stabilizing as markets mature and incentives wane. For oil majors like BP, the time to re-focus on core markets in hydrocarbons has arrived. The winds of profit are blowing once again toward traditional oil and gas, as companies look to capitalize on their strengths in an industry that’s entering a new phase of regional dominance.

BP has reportedly hired Bank of America to sell a minority share in an offshore wind project. The British major will update its strategy in February 2025 to further lower its previously announced oil and gas reduction target.

Details:

• Reuters reported the sale was imminent, and that BP does not currently have any offshore wind farms in operations, but according to Upstream, BP is only “weighing selling a minority stake” in the unnamed project, not exiting this offshore wind business altogether.

• No specifics are available other than reports from four unnamed sources familiar with the matter, who say BP has hired Bank of America for this potential divestment.

• BP wants to reduce its share of what has been a “hefty investment” in the project, two of the sources said.

• BP has stakes in offshore businesses in the United Kingdom, Germany, the United States, and Asia, with a combined capacity of 9.6 gigawatts.

Context: Two weeks ago, The New York Times reported that BP was planning to drop its 2023 target of reducing oil and gas production by 25 percent before 2030. The shift is fueled by a change in leadership and a bigger trend among European majors.

CEO swap: Since Murray Auchincloss took the top position at BP in September 2023, the company’s strategy has changed significantly.

• Auchincloss emphasized that BP will focus on ROI and become a simpler company.

• BP has expanded exploration opportunities and walked back a bit on sustainability targets.

Focusing on oil and gas:

• In May 2024, BP, via its joint venture with Angola-based Azule Energy and ENI, signed an agreement for a new exploration block 2914A to enter Namibia.

• In July 2024, ADNOC chose BP to receive a 10-percent stake in the Ruwais LNG project, together with Shell, TotalEnergies, and Mitsui & Co.

• In July 2024, BP announced an FID to develop the Kaskida deepwater field in the Gulf of Mexico.

• In August 2024, BP signed a memorandum of understanding with the Iraqi government to look into the redevelopment of the giant Kirkuk oil and gas fields, including exploration activity.

• BP, again using its Azule Energy vehicle, is also reportedly one of the potential bidders for Galp Energia’s dilution of its Namibia oil discovery.

Walking back on renewables:

• BP wrote off $1.1 billion in 2023 for its offshore wind business in 2023.

• BP’s recent reversion on previous renewable energy targets exemplifies a broader trend of European international oil companies refocusing on their core business of oil and gas, which I will highlight in the November issue of AAPG’s Explorer magazine.

• BP in particular has been under investor pressure, as the company has underperformed compared to its peers.

• BP’s market cap stands at $83 billion as of 21 October. BP’s two biggest European peers, Shell and TotalEnergies, have market caps of $207 billion and $148 billion, respectively.

BP’s share price is down 22 percent over the past 12 months and 12 percent YTD in 2024.