April 7, 2008

BP retreats from renewables as competitors invest

by Amy Westervelt

LONDON With oil at or above the mythical $100 per barrel barrier, oil companies are responding in one of two ways: ramping up renewable energy initiatives or moving money from renewables to petroleum excavation.

Analysts have been predicting a shift away from renewable energy for London-based BP (NYSE: BP) since former CEO Lord Browne stepped down in May 2007. That shift is now underway as CEO Tony Hayward cuts costs and moves more money into petroleum in order to improve BP’s competitiveness in the refining business. At Hayward’s first analyst presentation since assuming the CEO role, he announced a $1.5 billion investment in the company’s alternative energy operations, but hinted that the company may sell off the “green” segment of its business altogether. Hayward referred to the investment as a way to build equity, valuing the “green” unit at $5 billion to $7 billion. “As we go forward we will be looking at how best we can realize that growing value for our shareholders,” he stated.

According to an anonymous source close to the company, a top-down decision has been made to pull away from touting any “green” initiatives in the media, and in fact major “green” advertising buys have been canceled. Recent press releases focus not on alternative energy successes as they did in Browne’s time, but on BP’s ability to keep pumping oil, maintain its oil reserves and safely conduct deep-water oil drilling.

Meanwhile, BP’s competitors seem to be increasing their marketing of, if not investment in, renewable energy. Shell (NYSE: RDS-B) and Chevron (NYSE: CVX) both made major algae plays in late 2007 and early 2008. Shell teamed up with Hawaii-based HR Biopetroleum to form Cellana, a new company that will research algae- based biofuels in Kona, where the two plan to build a pilot plant and eventually a large-scale commercial plant. Chevron announced a partnership in January 2008 with San Francisco- based Solazyme and the National Renewable Energy Lab to research algal strains for biofuel production, and to perfect Solazyme’s process for converting algae to fuel. ConocoPhillips purchased a Louisville, Colo., StorageTek campus from Sun Microsystems (Nasdaq: JAVA) for $55.6 million in January and announced plans to turn the facility into an energy research center that “marries the traditional oil and gas industry with renewable energy,” according to a press release.

Despite “green” R&D claims, the Big Oil firms continue to be embroiled in disputes over oil sands in Canada, where the greenhouse gas emissions associated with extracting oil are two to three times those of traditional drilling. They were also recently named as defendants in a suit brought by the Eskimo village of Kivalina, Alaska. The charge? Global warming, caused by energy exploration and generation. Kivalina must be relocated because of the amount of ice melting around it, and the villagers say the oil companies should pay for a problem they caused. The U.S. Army Corps of Engineers and the U.S. Government Accountability Office agree with the villagers and estimate relocation costs of $95 million to $400 million.

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