bp To Acquire U.S. RNG Producer, Marketer In $4 Billion Deal; Will Market RNG TO Existing bp Natural Gas End-use Customers

October 17, 2022

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Reporting by Paul Ring • ring@energychoicematters.com

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bp today announced that it has agreed to acquire Archaea Energy Inc., a producer of renewable natural gas (RNG) in the U.S.

The agreed acquisition, 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.

"bp sees the opportunity to deliver additional distinctive value through the integration of the business with bp's trading capabilities and broad customer base - bp is a leading marketer of natural gas in North America, with many customers looking to decarbonize," bp said

"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 said

"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 said

Bernard Looney, bp chief executive, said, "Archaea is a fantastic fast-growing business, and bp will add distinctive value through our trading business and customer reach."

Archaea Energy operates 50 RNG and landfill gas-to-energy facilities across the U.S., producing around 6,000 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 is said to 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 landfill gas RNG projects across the US, part of this pipeline.

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 has agreed to acquire Archaea for $3.3 billion in cash, or $26 per share, representing a 38% premium to Archaea's 30-day volume weighted average share price. Together with around $800 million net debt, the total enterprise value is $4.1 billion. Subject to regulatory approvals and Archaea shareholder approval, bp is targeting acquisition completion by the end of 2022.

"Post integration, bp expects the transaction to be accretive to both its earnings per share and free cash flow per share," bp said

"The business is expected to deliver rateable earnings growth. From around $140 million today, bp is targeting EBITDA 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. This underpins an acquisition multiple of around four times. bp's investment is expected to deliver double digit returns," bp said

"bp remains committed to its disciplined financial frame, with its five priorities unchanged. A resilient dividend remains bp's first priority with guidance unchanged. bp remains focused on maintaining a strong investment grade credit rating. bp's medium-term capital expenditure guidance is unchanged at $14-16 billion a year. And bp's commitment to return 60% of full year surplus cash flow through share buybacks in 2022, subject to maintaining a strong investment grade credit rating, is unchanged. In setting the buyback, bp's board will continue to take into account the cumulative level of and outlook for surplus cash flow, including the effect of this transaction," bp said

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