BP Buying Leading RNG Production Group in $4.1 Billion Deal

British oil major BP is continuing to diversify its energy portfolio, announcing a deal to acquire a company considered an industry leader in production of renewable natural gas (RNG).

BP on Oct. 17 said it was buying Houston, Texas-based Archaea Energy for $3.3 billion in cash, or $26 a share, along with $800 million for Archaea's debt. The deal is subject to regulatory approvals and approval by Archaea's shareholders, with the companies targeting the deal's closing by year-end. Archaea will operate as a subsidiary within BP after the transaction closes, according to the companies.

Archaea is a fantastic fast-growing business, and BP will add distinctive value through our trading business and customer reach," said BP CEO Bernard Looney. It will accelerate our key bioenergy growth engine, creating a real leader in the biogas sector, and support our net-ero ambition. And, importantly, we're doing this while remaining focused on the disciplined execution of our financial frame. Investing with discipline into the energy transition, creating further value through integration-this is exactly what BP's transformation into an integrated energy company is all about."

Largest RNG Deal to Date

The deal is the largest to date in the RNG sector, surpassing Chevron's $3.15 billion buyout of biodiesel maker Renewable Energy Group earlier this year. It's BP's largest acquisition since Looney took over as the company's chief executive in early 2020. Looney at the time said he would grow BP's renewable energy business and move to decarbonize the company's operations, in part by cutting emissions from its oil and gas production sector.

A biodigester facility in proximity to a cornfield. Corn stover, an organic material from cornstalks, is used as a feedstock in biogas production. Source: Shutterstock

RNG, also called biogas, is gas that is captured from organic waste in landfills or farms. Archaea operates 50 RNG and landfill gas-to-energy facilities across the U.S., and has a development pipeline of more than 80 projects. The company earlier this year announced a joint venture with Republic Services, a waste disposal group, to develop 40 RNG projects across the U.S. The groups said that joint venture will convert landfill gas into pipeline-quality RNG that can be used for a variety of applications to displace conventional natural gas.

The Jack Daniel Distillery in Tennessee is embarking on a $29.3 million renewable natural gas project.

BP has said it wants to substantially grow Archea's RNG output. Looney said the expectation is to grow production at least fivefold by 2030, to about 30,000 barrels of oil equivalent per day (boed). BP's current biogas business produces about 11,000 boed.

Biogas Investment

Looney on Monday said biogas is a product that our customers want," as more groups-particularly transportation companies-use biogas as a lower-carbon fuel. There's more demand for this product today than there is supply," Looney said, also noting that biogas sector is expected to grow 25 fold by 2050." Looney said BP plans to invest $1.7 billion in its biogas business over the next five years.

Archaea was founded with a mission to build the world's leading RNG development company to reduce global emissions and make multi-generational sustainability impacts. In a very short period of time, we have rapidly become a leading RNG platform in the U.S., and today's announcement will further enable this business to realize its full potential," said Nick Stork, Archaea's CEO and co-founder. BP is a world-class partner and a strong fit for Archaea, with a strategic focus on bioenergy and an operational history in the RNG value chain that is fully aligned with ours and our partners'."

Stork continued, We are excited to join [BP] in our mission to increase the role of RNG in helping customers reach their long-term climate goals, and I look forward to our hard-working team joining the BP organization to help achieve their bioenergy objectives. I am incredibly proud of our employees at Archaea who have driven this tremendous value creation and will continue to push forward Archaea's drive to foster clean energy growth and promote domestic energy reliance."

Daniel Rice, Archaea's board chairman, said, After a thorough review, our board determined that combining Archaea's RNG assets and our strong development backlog with BP's existing bioenergy business and deep operational and financial resources is the best way to create a stronger platform to achieve Archaea's full potential, while maximizing value for our shareholders. Today's news would not be possible without the entire Archaea organization, our best-in-class employees and our industry partners."

Decarbonization

The companies in a news release said the deal provides Archaea access to unmatched, world-class platforms, capabilities, and capital resources for acceleration of its growth plans. Archaea's business will be able to access BP's trading capabilities and broad customer base, further helping many of BP's customers achieve their decarbonization goals." The groups said that Archaea will be integral to BP's existing bioenergy business, which has established key positions in the segment and is one of BP's key transition growth engines, which is anticipated to further Archaea's growth into international markets."

BP officials have said the company expects to invest more than 40% of its total capital into its renewable energy and transition businesses by 2025. It expects to spend as much as $16 billion this year, and has said most of its capital expenditure will continue to go toward its oil and gas business.

-Darrell Proctor is a senior associate editor for POWER (@POWERmagazine).

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