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BP's Latest Move Highlights Dilemma for Oil Companies

http://www.fool.com/investing/general/2013/04/08/bps-latest-move-highlights-dilemma-for-oil-compani.aspx

Arjun Sreekumar
April 8, 2013

Last Wednesday, British oil giant BP (NYSE: 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 (NYSE: MPC) 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 t