BP green energy business up for sale?

03 March 2008

In a strategy update to the City, Tony Hayward, the oil group's chief executive, said BP would invest $1.5bn in wind and solar operations over the next 12 months to speed further growth, although oil and gas will see more than $20bn ploughed into it this year.

"Taking stockmarket valuations for similar companies, we estimate it [alternative energy] is already worth between $5bn and $7bn," he argued, adding: "As we go forward we will be looking at how best we can realise that growing value for our shareholders."

Any disposal would feed mounting concerns among environmental groups that BP is gradually turning its back on the green agenda pursued by Hayward's predecessor, Lord (John) Browne, as it moves into carbon-heavy activities such as the tar sands of Canada.

But sources close to the company insisted that BP was as committed as ever to renewables, highlighted by the acceleration of $8bn worth of spending originally earmarked for new technologies.

They said that Hayward's commitment to realising value from alternative energy was more likely to mean disposing of a stake in the business to a new partner rather than an all-out sale or initial public offering. But they insisted all these options were "some time off".

Vivienne Cox, chief executive of an alternative energy operation recently downgraded from full division to mere business unit, outlined for the first time to analysts that the wind business could be worth as much as $3.9bn and the solar operation $2.1bn. Other operations such as biomass, clean coal and hydrogen could make it up to a potential level of $7bn.

BP had assembled a land bank sufficient to build 15 gigawatts of wind generation in the US, including Cedar Creek in Colorado, one of America's biggest wind farms. There was more capacity planned for Europe, India and China while the company was aiming at growing solar sales to 800 megawatts by 2010, she added.

The bulk of the City presentation was taken up with details about progress made by the group in turning its financial position around after a fall in annual profits and a slump in the share price despite $100 per barrel oil.

BP said it had replaced its annual production by an impressive 112% in 2007 and argued the figure would have been 130% if oil had stayed at $60. Some 2.4bn barrels had been added to resources over the year boosting the total resource base to 42.1bn barrels.

Hayward said top management had been slimmed from six executive directors to four, 5,000 other jobs would be cut over the next 18 months and a variety of initiatives undertaken to improve safety and operational performance.

"We have made significant progress at BP over the past 10 months, quietly and without fuss, in resetting essential context, in establishing sound practical objectives and beginning to deliver them," he added.

Fadel Gheit, oil analyst with Oppenheimer, said he was impressed with the steady progress being taken to rehabilitate BP. "It makes sense to spin off the alternative energy business at some stage rather than having it hidden inside a much larger group," he added.

Source: guardian.co.uk

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