In an unexpected about face, BP has canceled the auction of its interest in 16 North American wind farms, a 2,600 MW portfolio valued by some at $1.5 billion. BP’s intent to spin off its wind assets was first announced in April of 2013. The decision to divest was attributed to a number of reasons, including an attempt to raise cash to meet liabilities associated with the 2010 Macondo oil spill in the Gulf of Mexico, a refocusing of BP’s business on conventional power and perhaps as part of a strategy to reduce exposure to the US following the political backlash from the Macondo spill. Three months later BP has canceled the sale.
The announcement of the asset sale seemed to be well timed and the proposed sale seemed to command a lot of attention from prospective buyers. Low interest rates, high demand for assets with stable cash flows and a shortage of contracted wind power projects have created what is conventionally regarded as a seller’s market for operating assets. Other independent power producers have exploited market conditions. Indeed, one week ago the market devoured NRG Energy’s $468 Million yieldco IPO, driving the target share price from $19–$21 per share up to an opening price of $27 per share.
No immediate explanation for the change of heart was given by BP, though it has publicly indicated that the sale was not necessary to meet Macondo obligations. Assuming the proceeds of the sale was not cash flow motivated, it could be that the decision was driven by an inability to deploy the proceeds of the sale more efficiently, given low interest rates and limited investment alternatives. In any case, the market now waits to see whether this latest development is a pause or a deeper strategic shift by BP.
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