In the largest ever renewable gas acquisition, BP will purchase Houston-based Archaea Energy Inc. for $4.1 billion, the companies announced.
Earlier in 2022, Chevron Corp bought biodiesel maker Renewable Energy Group for $3.15 billion.
With the deal, BP hopes to expand its alternative fuels business, as it pledged in early 2020 to cut greenhouse gas emissions and oil and gas production. Renewable gas, also called biogas, is captured from organic waste in farms and landfills. BP already produces about 11,000 barrels of oil equivalent per day (BOE/D), and intends to expand Archaea’s output five times by 2030, BP’s Chief Executive Bernard Looney told Reuters.
"This is a product that our customers want," he said, adding that utilities and transportation companies wanting to reduce their carbon footprint are looking to use biogas as a fuel. "There's more demand for this product today than there is supply."
The biogas sector is expected to grow 25-fold by 2050, Looney said.
BP has offered $26 in cash for each Archaea share, or $3.3 billion, and will take on about $800 million of net debt.
Analysts at Jefferies said they "expect the deal to be met with concerns caused by the large premium, the high near-term valuation metrics, and the potential impact on 2023 buybacks."
The acquisition will double the expected earnings before interest, taxes, depreciation, and amortization (EBITDA) from biogas to around $2 billion by 2030, BP said.
The company intends to invest $1.7 billion in the business by 2027 to accelerate its growth, which won’t affect BP's overall capital expenditure plans, Looney said.
The deal will push BP's 2022 spending to the upper limit of its $14 billion to $16 billion guidance, Chief Financial Officer Murray Auchincloss told investors. Its investment in renewables and transition businesses will reach more than 40% of total annual capital expenditure by 2025.