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Last Wednesday, British oil giant BP announced that it had put its U.S. wind power assets up for sale, as the company continues its strategy of focusing on more profitable oil and gas operations.

If it receives a favorable offer, the company thinks it can create more value for shareholders by divesting the wind assets, which are estimated to be worth some $1.5 billion.

Not only does the decision highlight BP‘s overarching focus on profitability, especially in the wake of the infamous 2010 Gulf of Mexico oil spill, it also underscores a major dilemma that energy companies face – choosing between the need for immediate profits and the option to invest in renewable energy sources over the long term. Let’s take a look.

Beyond petroleum?
BP‘s move to sell its wind power assets may come as a surprise to some, especially considering that the company once referred to itself as “Beyond Petroleum,” reflecting its determination to expand beyond its core oil and gas businesses.

But now, the need to remain profitable appears to be overpowering its prior focus on renewable energy, which began in earnest under Lord Browne‘s leadership from 1995 to 2007.

If the company sells its wind power assets, its biofuels business, which consists primarily of ethanol production facilities in Brazil, would be the last remaining artifact of its earlier push into alternative energy.

More like “Back to Petroleum”
Though a company spokesman denied that the recent move signals a departure from alternative energy, BP‘s decisions over the past few years suggest otherwise.

BP‘s CEO Bob Dudley recently announced that the company has given up on solar, after more than three decades of unprofitable attempts. The company has also ditched plans to develop carbon capture and storage technology, after it threw in the towel on a $500 million Scotland plant in 2007. And last year, it abandoned plans to construct a cellulosic biofuel plant in Florida, a facility that would have turned biological materials, such as wood, grasses, and plants, into ethanol.

Since the infamous 2010 Deepwater Horizon incident, the company has embarked on a highly publicized downsizing effort. Since it sold its Texas City refinery and related inventory to Marathon Petroleum last fall, it has parted with some $38 billion of assets. To date, the company has divested half its pipelines and upstream installations, as well as a third of its producing wells.

The bigger picture
BP‘s decision to part with its wind power assets highlights an important trend among energy companies. Many are struggling to strike a balance between investing in projects with immediate payoffs, such as drilling for oil, and investing in those with longer-term payoffs, such as renewable energy.

Consider Royal Dutch Shell , for instance. After having invested millions of dollars into a major wind project over the course of eight years, it recently gave up. Citing “unfavorable market conditions” and issues related to “transportation logistics,” the company announced last year that it was pulling …read more

Source: FULL ARTICLE at DailyFinance

By Justin Loiseau, The Motley Fool

Filed under: Investing

In an ironic twist of fate, BP has put up the “for sale” sign on its $1.5 billion of wind farms to help pay for its 2010 oil spill. Is BP‘s sale short-sighted, or does the energy company know something others don’t? Let’s look at wind energy, who has it, and whether wind will propel your portfolio to profits.

BP winds down wind
As part of its larger $38 billion garage sale, BP is in the process of selling off 16 wind farms across nine states. With a total generating capacity of 2,600 MW, this move is far from small peanuts for a company that famously renamed itself “Beyond Petroleum” in 2000.

But with $300 billion in assets, wind is hardly the winner that BP needs to succeed. The streamlining will help it focus on high-margin oil production and exploration, its bread and butter (excepting environmental disasters). As margins tighten and the global economic recovery continues to ooze along, it makes sense for energy companies to focus on what they do best. And for some utilities, what they do best increasingly includes wind.

Windy win?
When investors talk wind, NextEra Energy is the elephant in the room. Its 100 wind farms generate more than 10,000 net MW of electricity, accounting for 56% of the utility’s total generation capacity.

Source: NextEra 10-K.

Exelon gets pigeonholed as a nuclear play, but its wind assets provide a significant portion of its assets. The utility operates 44 wind farms totaling nearly 1,300 MW of generation capacity, and it spent $650 million in 2012 on wind capital expenditures.

Source: Exelon investor relations website.

The newest addition to the wind gang, Atlantic Power , recently announced that it will focus on natural gas and renewables in the years to come. The utility bought Ridgeline Energy from Veolia Environnement last year, adding three wind farms with 150 net MW to its assets.

Source: Atlantic Power Deutsche Bank Leverage Financed Conference Presentation.

It’s also shedding less profitable assets to generate cash for acquisitions and manage its high 2.2 debt-to-equity ratio. Atlantic passed off a transmission project to Duke Energy and American Transmission for $193 million in cash and debt handoffs, and it’s planning on further specializing in the year to come.

Did BP make the right choice?
Energy portfolios are a lot like ice cream. Some flavors don’t mix, and even the smallest scoop of one flavor can threaten the whole taste. BP made a calculated choice to put aside its wind assets, but one corporation’s trash is another corporation’s treasure. With the right combination, any asset class can look tasty.

As the nation moves increasingly toward clean energy, Exelon is perfectly positioned to capitalize on having the largest nuclear fleet in North America. This strength, combined with an increased focus on balance sheet health and its recent merger with Constellation, places Exelon …read more

Source: FULL ARTICLE at DailyFinance

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