BP to buy Archaea Energy for $4.1 billion

By Keefe Borden18 October 2022

Image: Archea Energy’s Q2 earnings presentation

BP plans to buy Archaea Energy, a major producer of renewable natural gas (RNG) in the U.S. for about $4.1 billion, or $3.3 billion in cash and the assumption of about $800 million of net debt, the companies announced.

The purchase price represents about $26 per Archaea share, a 38% premium to its 30-day volume weighted average share price. The deal remains subject to regulatory approvals and Archaea shareholder approval and bp is targeting acquisition completion by the end of 2022.

“Archaea is a fantastic fast-growing business, and bp will add distinctive value through our trading business and customer reach. It will accelerate our key bioenergy growth engine, creating a real leader in the biogas sector, and support our net zero ambition,” said bp CEO Bernard Looney.

Bioenergy is one of five strategic transition growth engines that bp intends to grow rapidly through this decade. bp expects investment into its transition growth businesses to reach more than 40% of its total annual capital expenditure by 2025, aiming to grow this to around 50% by 2030, bp reported.

Acquiring Archaea will expand bp’s presence in the US biogas industry, enhancing its ability to support customers’ decarbonization goals and also progressing its aim to reduce the average carbon intensity of the energy products it sells. bp aims to reduce that carbon intensity to net zero by 2050 or sooner

Based in Houston, Texas, Archaea Energy operates 50 RNG and landfill gas-to-energy facilities across the US, producing around 6000 barrels of oil equivalent a day (boe/d) of RNG. At closing its production would be expected to provide an immediate 50% increase to bp’s biogas supply volumes.

Archaea has a development pipeline of more than 80 projects that underpin the potential for around five-fold growth in RNG production by 2030. Earlier this year, it announced a joint venture with Republic Services, Inc. to develop 40 RNG projects across the US, part of this pipeline. The joint venture will convert landfill gas into pipeline-quality RNG that can be used for a variety of applications to displace conventional natural gas, bp said.

Archaea has extensive operational expertise and experience with an industry-leading modular and integrated approach to biogas projects that provides short development lead-times. The business’s experienced management and operations team has a proven track record and will remain with bp on completion, the company said.

Nick Stork, CEO of Archaea Energy, said: “Archaea has become one of the largest and fastest growing RNG platforms in the US and today’s announcement 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.”

Jon Vander Ark, Republic Services president and chief executive officer, said: “The acquisition of Archaea by bp 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.”

The acquisition of Archaea has a strong strategic fit with bp’s existing biogas business, enabling expansion of its position in the US and potentially also in key geographies globally, including the UK and Germany. Alongside growth in bp’s 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 said.

bp is a major marketer of natural gas in North America and plans to integrate Archaea’s business with its trading capabilities and broad customer base. Many of its customers are looking to decarbonize, leading to renewed demand for biogas.

Demand for biogas is also diversifying with opportunities for growth into areas such as LNG, renewable hydrogen, and power for EV charging, bp said.

Dave Lawler, chairman and president of bp America, said: “Our 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. ”

The acquisition is expected to deliver rateable earnings growth. From around $140 million today, bp is targeting EBITDA5 from the business, when integrated with bp, of more than $500 million in 2025 and is aiming for around $1 billion by 2027, following completion of the development pipeline, bp announced.

Increasing sales of RNG will support bp’s net zero ambition, specifically its aim to reduce to net zero the carbon intensity of energy products it sells by 2050 or sooner. It has set an interim target to reduce this carbon intensity by 5% by 2025 and aims to reduce it by 15-20% by 2030, both against a 2019 baseline.

The announcement comes two weeks after Republic Services and Archaea Energy announced plans to build an RNG facility at Middle Point landfill, about 32 miles southeast of Nashville, Tennessee, USA. The project will convert the gas that naturally occurs as the waste in place at Middle Point Landfill decomposes into pipeline-quality RNG that can be used as a low-carbon alternative to fossil fuels, Archaea said.

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