BP to acquire Archaea Energy for $4.1B

BP North America, with offices in Houston, has announced the planned acquisition of Archaea Energy Inc., a renewable natural gas (RNG) company also based in Houston. The acquisition, subject to regulatory and Archaea shareholder approval, is for about $4.1 billion, including $800 million of net debt.  

According to Archaea, the cash consideration represents about a 38 percent premium to the company's volume-weighted average share price for the 30 days ending Oct. 14. The parties hope to close the acquisition by the end of 2022. Upon completion of the transaction, Archaea would operate as a subsidiary within BP and become part of the larger global organization and Nick Stork would continue to lead Archaea as the company’s CEO.  

"Archaea is a fantastic, fast-growing business, and BP will add distinctive value through our trading business and customer reach,” says Bernard Looney, a BP chief executive. “It will accelerate our key bioenergy growth engine, creating a real leader in the biogas sector and support our net zero ambition.”

Bioenergy is one of five strategic transition growth engines that BP says it intends to focus on throughout this decade. The company expects investment in its transition growth businesses to reach more than 40 percent of its total annual capital expenditure by 2025 and 50 percent by 2030.

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. Its production could provide an immediate 50-percent increase to BP’s biogas supply volumes. Both BP and Archaea Energy are partners in the Mavrix joint venture, a company that owns RNG production facilities in Michigan, Oklahoma and two facilities in Tennessee. 

According to a news release from BP, Archaea has a development pipeline of more than 80 projects that underpin the potential for fivefold growth in RNG production by 2030. Earlier this year, Archaea announced a joint venture with Republic Services Inc. to develop 40 RNG projects across the United States. The joint venture will convert landfill gas into pipeline-quality RNG that can be used for various applications to displace conventional natural gas. 

Acquiring Archaea will expand BP’s presence in the U.S. biogas industry, enhancing its ability to support customers’ decarbonization goals. It also expedites BP’s aim to reduce the average carbon intensity of the energy products it sells. The company says it aims to reduce that carbon intensity to net zero by 2050 or sooner.

The acquisition also enables BP’s expansion in world markets, including the United Kingdom and Germany. Alongside the growth in BP’s existing portfolio, the addition of Archaea’s production and the pipeline could take BP’s biogas supply volumes to around 70,000 boe/d globally by 2030.  

“The addition of Archaea Energy rapidly advances our access to feedstock and scales our upstream participation in the biogas value chain, a distinctive source of competitive advantage,” Looney said during an Oct. 17 investor meeting. 

BP will provide Archaea access to its platforms, capabilities and capital resources to accelerate its growth plans. Archaea’s business will be able to access BP’s trading capabilities and broad customer base, helping many of BP’s customers achieve their decarbonization goals. 

“Archaea has become one of the largest and fastest growing RNG platforms in the U.S., and [this] announcement will further enable this business to realize its full potential,” Stork says. “BP is a world-class partner with an operational history in the RNG value chain that is fully aligned with ours and our partners. I look forward to our hard-working team joining the BP organization to help achieve their bioenergy goals." 

The business is expected to deliver rateable earnings growth. From around $140 million today, BP is targeting earnings before interest, taxation, depreciation and amortization (EBITDA) from the business, when integrated with BP, of more than $500 million in 2025. The company is aiming for around $1 billion by 2027, following the completion of the development pipeline. This underpins an acquisition multiple of around four times. BP’s investment is expected to deliver double-digit returns.  

As a result of the agreed acquisition, BP has doubled to around $2 billion its aim for the contribution to EBITDA from biogas by 2030. BP aims for more than $10 billion EBITDA to be generated by its transition growth businesses by 2030, up from previous guidance of $9 billion to $10 billion.  

Editor’s Note: Waste Today has reached out to Archaea Energy and BP for further comment.