BP will pay approximately $4.1 billion for Archaea Energy Inc, a U.S.-based producer of renewable natural gas (RNG), the companies announced on Monday, as the British energy major seeks to expand its alternative fuels business.
The transaction will be the largest RNG acquisition to date, surpassing Chevron Corp's $3.15 billion acquisition of biodiesel maker Renewable Energy Group Inc earlier this year.
It will also be the largest acquisition made by BP since Chief Executive Bernard Looney took office in early 2020, promising to reduce greenhouse gas emissions and oil and gas production while expanding the company's renewables business.
RNG, also known as biogas, is a gas derived from organic waste in landfills or farms.
Archaea, based in Houston, Texas, operates 50 RNG and landfill gas-to-energy facilities across the United States, and BP plans to increase Archaea's output fivefold by 2030 to 30,000 barrels of oil equivalent per day (boed), according to Looney.
BP already has a sizable biogas business, producing approximately 11,000 boed.
"This is a product that our customers want," Looney said. Utilities and transportation companies are seeking to reduce their carbon footprint want to use biogas as a fuel, he added.
"There's more demand for this product today than there is supply," he added, adding 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.
The offer represents a 54% premium over Archaea's Friday closing price. Archaea's stock increased 53% in premarket trading.
However, Jefferies analysts stated that they "expect the deal to be met with concerns due to the large premium, the high near-term valuation metrics, and the potential impact on 2023 buybacks."
According to BP, the deal will more than double the expected earnings before interest, taxes, depreciation, and amortization (EBITDA) from biogas to around $2 billion by 2030.
Looney stated that BP intends to invest $1.7 billion in the business by 2027 to accelerate its growth, which will not affect BP's overall capital expenditure plans.
BP expects renewables and transition businesses to account for more than 40% of total annual capital expenditure by 2025. BP intends to spend $14 to $16 billion in 2022, the majority of which will be spent on oil and gas.
BP stated that the acquisition will have no effect on its commitment to increase its dividend by 4% annually at oil prices above $60 per barrel, as well as its share buyback program.
According to Jefferies, the deal will have an impact on BP's 2023 buyback outlook because it will reduce the company's surplus cash pool.
Archea was advised by Bank of America on the transaction.
(Source:www.bloombwerglaw.com)
The transaction will be the largest RNG acquisition to date, surpassing Chevron Corp's $3.15 billion acquisition of biodiesel maker Renewable Energy Group Inc earlier this year.
It will also be the largest acquisition made by BP since Chief Executive Bernard Looney took office in early 2020, promising to reduce greenhouse gas emissions and oil and gas production while expanding the company's renewables business.
RNG, also known as biogas, is a gas derived from organic waste in landfills or farms.
Archaea, based in Houston, Texas, operates 50 RNG and landfill gas-to-energy facilities across the United States, and BP plans to increase Archaea's output fivefold by 2030 to 30,000 barrels of oil equivalent per day (boed), according to Looney.
BP already has a sizable biogas business, producing approximately 11,000 boed.
"This is a product that our customers want," Looney said. Utilities and transportation companies are seeking to reduce their carbon footprint want to use biogas as a fuel, he added.
"There's more demand for this product today than there is supply," he added, adding 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.
The offer represents a 54% premium over Archaea's Friday closing price. Archaea's stock increased 53% in premarket trading.
However, Jefferies analysts stated that they "expect the deal to be met with concerns due to the large premium, the high near-term valuation metrics, and the potential impact on 2023 buybacks."
According to BP, the deal will more than double the expected earnings before interest, taxes, depreciation, and amortization (EBITDA) from biogas to around $2 billion by 2030.
Looney stated that BP intends to invest $1.7 billion in the business by 2027 to accelerate its growth, which will not affect BP's overall capital expenditure plans.
BP expects renewables and transition businesses to account for more than 40% of total annual capital expenditure by 2025. BP intends to spend $14 to $16 billion in 2022, the majority of which will be spent on oil and gas.
BP stated that the acquisition will have no effect on its commitment to increase its dividend by 4% annually at oil prices above $60 per barrel, as well as its share buyback program.
According to Jefferies, the deal will have an impact on BP's 2023 buyback outlook because it will reduce the company's surplus cash pool.
Archea was advised by Bank of America on the transaction.
(Source:www.bloombwerglaw.com)
