To expand and accelerate its bioenergy business, BP plc on Monday agreed to acquire Archaea Energy Inc., a leading U.S. renewable natural gas (RNG) producer.
The acquisition, subject to Archaea shareholder approval, would be for $3.3 billion in cash and close to $800 million in debt.
Bioenergy is one of the five strategic transition growth engines that BP plans to expand through this decade. The London-based supermajor expects its investment into transition growth businesses to be more than 40% of annual capital spending by 2025, reaching 50% by 2030.
“Archaea is a fantastic, fast growing business, and BP will add distinctive value through our trading business and customer reach,” CEO Bernard Looney said. “It will accelerate our key bioenergy growth engine, creating a real leader in the biogas sector, and support our net zero ambition.”
Houston-based Archaea operates 50 RNG and landfill gas-to-energy facilities across the United States, with production of about 6,000 boe/d. Once the transaction is completed, BP expects to provide “an immediate 50% increase” to its biogas supply volumes.
Archaea also has a development pipeline of more than 80 projects that would underpin the potential for around five-fold growth in RNG production by 2030. Earlier this year, Archaea launched a joint venture with Republic Services Inc. to develop 40 RNG projects across the United States as part of the pipeline. The joint venture plans to convert landfill gas into pipeline-quality RNG that may be used to displace conventional natural gas.
Alongside growth in its existing portfolio, the addition of Archaea’s production and pipeline “has the potential to take BP’s biogas supply volumes to around 70,000 boe/d globally by 2030,” BP management noted.
‘Many Customers Looking To Decarbonize’
“BP sees the opportunity to deliver additional distinctive value through the integration of the business with BP’s trading capabilities and broad customer base – BP is a leading marketer of natural gas in North America, with many customers looking to decarbonize. Demand for biogas is also diversifying with opportunities for growth,” into liquefied natural gas, hydrogen and power for electric vehicle charging, management said.
BP America President Dave Lawler said the company’s “biogas team is already one of the leading suppliers of renewable natural gas in North America. This deal accelerates our ability to deliver cleaner energy, generate significant earnings in a fast growing sector and help reduce emissions. This could help BP take a significant stride toward our net zero ambition.”
Archaea CEO Nick Stor said his company “has become one of the largest and fastest growing RNG platforms in the U.S.” The agreement with BP “will further enable this business to realize its full potential. BP is a world-class partner with an operational history in the RNG value chain that is fully aligned with ours and our partners, and I look forward to our hard working team joining the BP organization to help achieve their bioenergy goals.”
Republic Services CEO Jon Vander Ark said the transaction “allows us to accelerate decarbonization through our innovative joint venture with Archaea. With our shared focus on sustainability, this joint venture provides additional opportunities to work together on other decarbonization and environmental services initiatives.”
As announced, the deal would pay Archaea shareholders $26/share, representing a 38% premium to its 30-day volume-weighted average share price. Subject to approvals, BP expects to complete the transaction before the end of the year.
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