BP will acquire Archaea Energy, a producer of renewable natural gas (RNG) based in the United States, for around $4.1 billion, as the British oil giant looks to grow its alternative fuels business. Indeed, the two firms announced the news on Monday.
The transaction will surpass Chevron Corp.’s $3.15 billion acquisition of biodiesel manufacturer Renewable Energy Group Inc. earlier this year as the largest RNG acquisition to date.
Additionally, it will be the biggest acquisition undertaken by BP since Chief Executive Bernard Looney assumed office at the beginning of 2020. Moreover, he announced a commitment to reduce the company’s greenhouse gas emissions and oil and gas production while expanding its renewable energy sector.
RNG, often known as biogas, is a gas produced from organic waste in farms or landfills.
The United States is home to 50 RNG and landfill gas-to-energy facilities operated by Houston, Texas-based Archaea. According to BP, Archea’s output will increase five-fold to 30,000 barrels of oil equivalent per day (boed) by 2030.
However, around 11,000 boed of biogas are already produced by BP’s sizable biogas division.
Looney declared, “This is a product that our customers demand. He continued, “Utilities and transportation businesses want to use biogas as a fuel to lower their carbon footprint.”
Furthermore, he added that the biogas industry is anticipated to develop 25 times by 2050. Looney also noted that there is already a greater demand for this product than there is supply.
Anyway, for each Archaea share, or $3.3 billion, BP has offered $26 in cash and will assume around $800 million in net debt.
Besides, the offer is 38% over the 30-day average price and 54% above Archaea’s Friday closing price, respectively. In premarket trading, shares of Archaea increased 53%.
Of course, in order to speed up the company’s growth, BP intends to invest $1.7 billion in it by 2027. Then again, according to Looney, this will not alter BP’s long-term capital expenditure plans.
Nevertheless, by 2025, BP anticipates that investment in renewable energy and its transition businesses will account for more than 40% of its annual capital spending. The majority of the $14–$16 billion that BP wants to spend in 2022 will go into oil and gas.
