BP’s decision to sell its US onshore wind energy business highlights the UK oil major’s efforts to simplify operations, but it has done little to address investor concerns about its strategic direction. As oil prices decline, BP is underperforming its rivals, raising questions about the viability of its 2025 profit and shareholder return targets.

1. BP’s Energy Transition Strategy in Question

BP’s ambitious energy transition strategy, launched in 2020 under former CEO Bernard Looney, aimed to transform the company into an integrated energy provider. However, investors remain sceptical about its execution and outcomes:

• New Leadership: CEO Murray Auchincloss, appointed in January, has pledged to simplify BP’s operations and focus on delivering shareholder returns.
• Investor Doubts: Despite Auchincloss’s assurances, the market remains unconvinced about BP’s ability to deliver its promised targets.

2. US Wind Energy Sale: A Strategic Shift

BP plans to sell its US onshore wind business, which includes 10 wind farms with 1.7 gigawatts of capacity (BP’s share being 1.3GW). The sale reflects the company’s efforts to divest non-core assets:

• Mature Assets: These older wind farms will require significant reinvestment to replace ageing turbines with newer models.
• Valuation Concerns: Given the age of the assets, they are unlikely to command the $2 billion valuation typical for newer wind projects.

3. Declining Oil Prices Compound Challenges

The broader energy sector is grappling with lower oil prices, but BP has fared worse than its competitors:

• Profitability Pressure: BP’s 2025 ebitda target of $46–$49 billion, set when oil prices exceeded $80, now appears increasingly uncertain.
• Shareholder Returns at Risk: The company’s plan to return $7 billion to investors via share buybacks in 2025 may be in jeopardy if cash flows continue to decline.

4. Market Sentiment: A Need for Clarity

BP’s falling share price underscores a lack of confidence in its narrative. While divestments and streamlining efforts aim to improve focus, they have not reassured investors:

• Energy Transition Scepticism: BP’s strategy to balance traditional oil operations with renewable energy investments remains unconvincing to many.
• Industry-Wide Pressure: As oil majors face declining cash flows, the need for a compelling vision becomes critical.

Conclusion: BP’s Next Steps

BP’s US wind energy sale is a step towards simplifying its portfolio, but it does little to clarify its strategic direction. With declining oil prices and increasing investor scrutiny, the company faces mounting pressure to deliver on its energy transition goals while maintaining profitability. Achieving its ambitious 2025 targets will require a more cohesive and transparent strategy to regain market confidence.

Source: (FT.com)