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bp accelerates and grows in bioenergy by agreeing to acquire leading US biogas company Archaea Energy | News and insights

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In a move to expand and accelerate the growth of its strategic bioenergy business, bp today announced that it has agreed to acquire Archaea Energy Inc., the leading US producer of renewable natural gas (RNG). Subject to regulatory and Archaea shareholders approval, the negotiated purchase will be for $3.3 billion in cash and approximately $800 million in net debt.2.

Bioenergy is one of five strategic transition growth engines that bp plans to grow rapidly this decade. bp expects investment in transition growth businesses to reach more than 40% of total annual capital expenditure by 2025 and aims to increase this to approximately 50% by 2030.

The acquisition of Archaea will expand bp’s presence in the US biogas industry, increase its ability to support its customers’ decarbonisation goals, and further advance its goal of reducing the average carbon intensity of the energy products it sells. bp aims to reduce this carbon intensity to net zero by 2050 or sooner3.

“Archaea is a fantastic, fast-growing business and bp will add distinct value through our commerce business and customer reach. It will accelerate our core bioenergy growth engine and support our net zero goal by creating a true leader in the biogas industry. And more importantly, we do this while continuing to focus on the disciplined implementation of our financial framework. Investing disciplined in the energy transition, creating more value through integration – that’s what bp’s transformation into an integrated energy company is all about.”

Bernard Looney, CEO

Bernard Looney, CEO of bp, said: “Archaea is a fantastic, fast-growing business and bp will add distinctive value through our trading business and customer reach. It will accelerate our core bioenergy growth engine and support our net zero goal by creating a true leader in the biogas industry. And more “Most importantly, we do this while continuing to focus on the disciplined implementation of our financial framework. Investing disciplined in the energy transition, creating more value through integration – that’s what bp’s transformation into an integrated energy company is all about.”

Archaic Energy

Headquartered in Houston, Texas, Archaea Energy is a leading RNG producer, operating 50 RNG and landfill gas power plants across the United States and producing approximately 6,000 barrels of oil equivalent (boe/d) RNG per day. Closing production is expected to provide an immediate 50% increase in BP’s biogas supply volumes.

Archaea has a development pipeline of more than 80 projects supporting the potential to grow approximately five times in RNG production by 2030. Earlier this year, Republic Services, Inc. announced a joint venture to develop 40 RNG projects across the US. It’s part of the pipeline. The joint venture will convert landfill gas into pipeline-quality RNG that can be used for a variety of applications to replace conventional natural gas.

Archaea has extensive operational expertise and experience with an industry-leading modular and integrated approach to biogas projects that enable short development times. The business’s innovative and highly experienced management and operations team has a proven track record and will remain with bp when completed.

Archaea Energy CEO Nick Stork said: “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 realize its full potential. bp is a world-class partner in the RNG value chain with an operational history that is fully aligned with that of us and our partners, and I look forward to joining our hardworking team to help them meet their bioenergy goals.”

Jon Vander Ark, president and CEO of Republic Services, said: “The acquisition of Archaea by bp enables us to accelerate decarbonisation through our innovative joint venture with Archaea. With our shared focus on sustainability, this joint venture offers additional opportunities to work together on other decarbonisation and environmental services initiatives.”

The acquisition of Archaea is in strong strategic alignment with bp’s existing biogas business and allows it to expand its position in the US and potentially in key geographies globally, including the UK and Germany. The addition of Archaea’s production and pipeline, along with growth in bp’s existing portfolio, has the potential to increase bp’s biogas supply volumes to 70,000 boe/d worldwide by 2030.

bp sees an opportunity to provide additional distinctive value through the integration of the business with bp’s trading capabilities and broad customer base – bp is a leading natural gas marketer in North America where many customers seek to decarbonize. Biogas demand is also diversifying, with growth opportunities into areas such as LNG, renewable hydrogen and power for electric vehicle charging.

Dave Lawler, president and president of bp America, said: “Our biogas team is already one of North America’s leading suppliers of renewable natural gas. This agreement accelerates our ability to deliver cleaner energy, make significant gains in a fast-growing industry, and help reduce emissions. This could help bp take an important step towards our net zero goal. ”

Accelerates earnings growth while maintaining discipline

bp has agreed to acquire Archaea for $3.3 billion in cash or $26 per share, representing a 38% premium to the 30-day volume-weighted average share price.4. Total business value is $4.1 billion, with net debt of approximately $800 million. Subject to regulatory approvals and Archaea shareholder approval, bp aims to complete the acquisition by the end of 2022.

Post integration, bp expects the transaction to increase in terms of both earnings per share and free cash flow per share.

The business is expected to generate commensurate earnings growth. Today at around $140M bp targets EBITDA5 When integrated with bp, more than $500 million from business in 2025 and targeting approximately $1 billion by 2027 after completion of the development pipeline.6. This forms the basis for a solid purchase of about four timesone. BP’s investment is expected to deliver double-digit returns.

As a result of the agreed acquisition, bp doubled its target of contributing to EBITDA from biogas to approximately US$2 billion in 2030.7 – up from the previous $9-10 billion guidance.

bp remains committed to its disciplined fiscal framework, with its five priorities unchanged. A flexible dividend remains bp’s first priority, with guidance unchanged. bp continues to focus on maintaining a strong investment grade rating. bp medium term8 capital expenditure guidance remained unchanged at $14-16 billion per year. And BP’s commitment to return 60% of full-year excess cash flow9 Subject to maintaining a strong investment grade rating, there will be no changes through share buybacks in 2022. In determining the buyback, bp’s board of directors will continue to consider the cumulative level and outlook of excess cash flow, including the impact of this transaction.

renewable natural gas

Global demand for biogas is growing rapidly. bp’s Energy Outlook In 2022, biogas grows more than 25 times from 2019 to 2050 in both Accelerated and Net Zero scenarios.

Biogas is produced by the decomposition of organic matter in landfills, anaerobic digesters and other waste facilities. Archaea’s operations process biogas to generate pipeline-quality RNG or generate power – it would ignite or vent if it hadn’t been captured.

RNG can be used interchangeably with fossil fuel-based natural gas as a transportation fuel, including in power generation and heating, but because it is derived from organic waste, its use results in lower life-cycle greenhouse gas emissions. Projects such as Archaea also have the potential to integrate with technologies such as carbon capture and storage to further reduce life-cycle greenhouse gas emissions.

Increased sales of RNG will support BP’s net zero target, particularly its goal of reducing the carbon intensity of the energy products it sells to net zero by 2050 or earlier. It has set an interim target to reduce this carbon intensity by 5% by 2025, and both aim to reduce it by 15-20% by 2030, based on 2019.

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