Archaea Energy Inc. spent the first three months of the year adding renewable natural gas (RNG) assets and projects to boost its production nine-fold within the next six to eight years.
The Houston-based RNG producer, which is majority owned by Rice Investment Group, is still relatively fresh from its merger with Aria Energy LLC last year. However, management said its 1Q2022 results represented “an important inflection point.”
CEO Nick Stork said the company is focused on increasing long-term RNG production and long-term contracts using momentum from its legacy companies. However, there is more progress to make.
Archaea’s Version 1 or V1 RNG plant design “was technically sound, but not proven in the field,” Stork said. “We had some strong commercial agreements from legacy Aria, but there is much to do to show that we can secure our target volume percentages under long-term investment-grade contracts.”
Archaea announced in April it would acquire Industrial Power Generating Co. LLC (Ingenco) and its parent company for $215 million. The acquisition could land Archaea an additional 14 landfill gas plants and related gas rights.
The company also may build more RNG facilities on 11 sites through the Ingenco deal as it has proven flows of 5 billion Btu/year, management said. Archaea could complete the sale by July. The company also added one site through an acquisition and sanctioned two greenfield projects, further increasing the project list.
During the quarter, Archaea said it added 53 RNG development projects to its backlog, growing it to 88 projects set to go online in less than 10 years. It plans to finish 20 projects in 2022, including 10 upgrades to existing RNG facilities and 10 newbuilds.
“We now estimate our earnings power could be approximately $600 million annually, once all projects are completed and ramped up with estimated RNG production of approximately” 50 billion Btu/year, Stork said.
Archaea and Republic Services Inc. announced plans at the beginning of May to create 39 RNG projects as part of their joint venture Lightning Renewables LLC. Archaea is expected to combine an $800 million investment with $300 million from Republic to start tackling new RNG projects by the end of the year.
Archaea would develop, engineer, construct and operate the RNG facilities at landfills owned by Republic in 19 states. Through the next five years, Lightning Renewables projects could create an additional 12.5 billion Btu/year in RNG capacity.
Stork said rising electricity and natural gas prices over the quarter helped boost earnings as the RNG market strengthened. It reported selling 1.54 billion Btu and 166,000 MWh during 1Q2022. Those gains were largely offset by additional overhead and acquisition costs from its growth strategy.
RNG production was also limited during the first quarter because its Assai gas plant in Dunmore, PA, was undergoing maintenance. The project was brought online last December, but the company started an electrical overhaul in January. Assai is estimated to create more than 4 billion Btu/year of RNG.
Around 80% of Assai’s gas has been placed under long-term contract. In January, Archaea inked a deal with a subsidiary of Fortis Inc. for 7.6 billion Btu/year. The company has set a goal of placing 70% of its RNG volumes under similar contracts.
Stork said the company could announce several “additional long-term fixed-price contracts in the coming months.”
Archaea reported a net loss of $33.3 million (minus 28 cents/share) in 1Q2022, compared with a year-ago loss of $2.5 million The company went public in September after the merger with Aria was completed.
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