BP to buy US biogas producer Archaea for $4.1 bn
28 Oct 2022
BP will buy US-based renewable natural gas (RNG) producer Archaea Energy Inc for about $4.1 billion, as the British energy major seeks to expand its alternative fuels business.
Archaea Energy operates 50 RNG and landfill gas-to-energy facilities across US, with development pipeline supporting potential for around five-fold increase in RNG volumes by 2030.
BP expects the acquisition to double its EBITDA from biogas to around $2 billion by 2030 and support BP’s aim to increase EBITDA from transition growth businesses by 2030 from $9-10 billion to more than $10 billion.
Based in Houston, Texas, Archaea Energy produces around 6,000 barrels of oil equivalent a day (boe/d) of RNG at its 50 RNG and landfill gas-to-energy facilities across the US.
At closing its production would be expected to provide an immediate 50 per cent increase to BP’s biogas supply volumes.
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.
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.
The agreed transaction, which is subject to regulatory and Archaea shareholder approval, will be for $3.3 billion in cash, as well as around $800 million of net debt.
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 per cent of its total annual capital expenditure by 2025, aiming to grow this to around 50 per cent by 2030.
Acquisition of Archaea will expand BP’s presence in the US biogas industry, enhance its ability to support customers’ decarbonisation goals and also promote 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.
“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. 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,” Bernard Looney, chief executive officer of 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 innovative and highly experienced management and operations team has a proven track record and will remain with bp on completion.
“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 realise 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’,