Oracle shares fell by 4% to 6.4% on Thursday following reports that the company sent a "force majeure" notice regarding its massive New Mexico data center project, dubbed Project Jupiter. The notice was sent to the developer, a unit of Blue Owl Capital, which also saw its shares decline. Oracle's intent is to shield itself from incurring higher expenses and to delay payments should the data center fail to come online as planned in 2028. This move highlights challenges faced by the $18 billion project, which has encountered regulatory setbacks and local opposition, including concerns over water supply and air quality.
Project Jupiter, designed to handle 2.45 gigawatts of electricity, has been beset by issues such as the denial of a key energy permit. The "force majeure" notice, while not an attempt to abandon the project, serves as a precautionary step for Oracle to assert its contractual position in case of delays beyond its control. However, the effectiveness of this maneuver in freeing Oracle from its financial obligations remains uncertain. A spokesperson for Oracle stated, "Project Jupiter remains on our planned schedule," and reaffirmed commitment to New Mexico, while a Blue Owl spokesman said the notice "does not change the financial commitments to this multiyear project."
Lenders backing the project are reportedly alarmed, with the $18 billion loan already trading at stressed levels, below $0.90 on the dollar. This debt was provided by a consortium of about 20 banks to fund the construction of the data center campus, a part of the broader AI infrastructure boom. The notice also raises questions about the resilience of data center leases, particularly clauses allowing tenants to exit if services don't commence on schedule. Oracle's credit risk hit a record high on Thursday, and its stock has experienced a 31% year-to-date slide.
This development is seen as a potential "core litigation and risk-allocation tool" in AI data center projects, reflecting a growing backlash against the rapid expansion of such facilities. Oracle had previously signed a $400 billion deal with OpenAI and SoftBank to support the development of five U.S. data centers, including the New Mexico site, with Stack Infrastructure (a Blue Owl portfolio company) developing the facility. Prior instances of force majeure in data center construction have often resulted in delayed delivery rather than abandonment, used as a mechanism to pause milestone payments and reset timelines without breaching contracts.
