US Biogas Company Archaea Energy Inc. Will Be Acquired By BP For $4.1 Billion

BP (BP.L) will buy Archaea Energy Inc., U.S.-based renewable natural gas (RNG) producer for about $4.1 billion including debt, the companies said on Monday. This major move comes at a time when the London-based energy giant is trying to hit net-zero emissions by 2050. 

“We’ve signed a $4 billion agreement to buy leading US renewable natural gas producer Archaea Energy in a disciplined deal that boosts BP’s bioenergy growth engine, offers value-growth potential for shareholders, and supports our net zero ambition” – BP’s website said.

The present agreement is thought to be the largest biogas acquisition ever, surpassing Chevron Corp.’s (CVX.N) earlier this year’s $3.15 billion acquisition of biodiesel manufacturer Renewable Energy Group Inc. On a similar note, it will also be the biggest acquisition undertaken by BP since Chief Executive Bernard Looney assumed office at the beginning of 2020.

In order to build a titan in so-called renewable natural gas, Rice Acquisition Corp. merged with two other businesses in 2021, giving rise to Archaea. The fuel’s contribution to the environment is mostly due to its ability to reduce emissions of methane, a potent greenhouse gas that, under certain circumstances, is produced when organic waste decomposes.

The Texas-based major collect biogas from farms or landfills and converts it into natural gas with pipeline grade. Although burning the fuel still produces carbon dioxide, it does so at a lesser rate than if the methane were simply allowed to vent into the environment. 

A $4.1 Billion Deal Will See BP Buy Archaea Energy Inc., A US Biogas Company

Across the United States, Archaea manages 50 RNG and landfill gas-to-energy facilities. According to BP, Archea’s output will increase five-fold to 30,000 barrels of oil equivalent per day (boed) by 2030, reported Reuters. This acquisition and target enhance the status quo of the alternative fuel business of BP, where they already have a large biogas business producing around 11,000 boed. 

“This is a product that our customers want,” the CEO said. He continued on a positive note, by saying that Utilities and transportation businesses should embrace biogas as a fuel to lower their carbon footprint. His optimistic remarks entail his claim that the biogas sector is expected to grow 25-fold by 2050. 

BP has offered $26 in cash for each Archaea share, for a total of $3.3 billion, and will assume approximately $800 million in net debt which rounds up the $4.1 bln sum. 

Reverberating BP’s shift to alternate fuel, giants like Shell Plc. and TotalEnergies SE have said they’ll keep investing a growing percentage of their cash flow in low-carbon energy while transitioning away from fossil fuels as the primary source of revenue, despite the industry making record profits this year on the surge in oil and gas prices after Russia’s invasion of Ukraine. 

In order to speed up the company’s growth, BP further intends to invest $1.7 billion in it by 2027. Looney claims that this won’t change BP’s long-term capital expenditure plans. Hopeful in meeting their goals meet, the increased gas price (globally) due to the invasion of Ukraine by Russia, and President Joe Biden’s call for climate change action are expected to further stimulate demand for lower-carbon fuels.

According to Daniel Rice, chairman of the Archaea board and the person responsible for putting the company’s founding deal together, the sale to BP is “the greatest option to create a stronger platform to reach Archaea’s full potential, while maximizing value for our shareholders.”

 BP is being advised financially by Morgan Stanley & Co. LLC and legally by Freshfields Bruckhaus Deringer. Both Kirkland & Ellis LLP and BofA Securities served as Archaea’s legal and financial advisors.