BP to acquire Archaea in $4.1bn deal

January 2023 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

January 2023 Issue

In a move which will expand the company’s position in the alternative fuels space, oil giant BP has agreed to acquire US-based renewable natural gas (RNG) producer Archaea Energy Inc in a deal worth $4.1bn, including approximately $800m of net debt.

Subject to regulatory approvals and Archaea shareholder approval, the parties aim to close the acquisition by the end of 2022. Certain existing Archaea shareholders, who collectively own approximately 27 percent of the company’s outstanding shares, have agreed to vote their shares in favour of the transaction.

Under the terms of the deal, Archaea shareholders will receive $26 per Archaea class A and class B share held in cash, a premium of approximately 38 percent on Archaea’s volume weighted average share price for the 30 days ending 14 October 2022, the last day of trading before the deal was announced.

Bioenergy is one of five strategic transition growth engines that BP intends to grow rapidly throughout the 2020s. The company expects investment into its transition growth businesses to reach more than 40 percent of its total annual capital expenditure by 2025, with plans to grow this to around 50 percent by 2030.

Upon completion, Archaea is expected to operate as a subsidiary within BP. Texas-based Archaea currently operates 50 RNG and landfill gas-to-energy projects in the US, with more than 80 other projects in development. BP aims to grow Archea’s output fivefold by 2030 to 30,000 barrels of oil equivalent per day.

“Archaea was founded with a mission to build the world’s leading RNG development company to reduce global emissions and make multi-generational sustainability impacts,” said Nick Stork, chief executive and co-founder of Archaea. “In a very short period of time, we have rapidly become a leading RNG platform in the US, and today’s announcement will further enable this business to realize its full potential. BP is a world-class partner and a strong fit for Archaea, with a strategic focus on bioenergy and an operational history in the RNG value chain that is fully aligned with ours and our partners’.”

“After a thorough review, our Board determined that combining Archaea’s RNG assets and our strong development backlog with BP’s existing bioenergy business and deep operational and financial resources is the best way to create a stronger platform to achieve Archaea’s full potential, while maximizing value for our shareholders,” said Daniel Rice, chairman of Archaea’s board. “Today’s news would not be possible without the entire Archaea organization, our best-in-class employees and our industry partners.”

“Archaea is a fantastic fast-growing business, and BP will add distinctive value through our trading business and customer reach,” said Bernard Looney, chief executive of BP. “It will accelerate our key bioenergy growth engine, creating a real leader in the biogas sector, and support our net zero ambition. And, importantly, we’re doing this while remaining focused on the disciplined execution of our financial frame. Investing with discipline into the energy transition, creating further value through integration – this is exactly what BP’s transformation into an integrated energy company is all about.”

“Our biogas team is already one of the leading suppliers of renewable natural gas in North America,” said Dave Lawler, chairman and president of BP America. “This deal accelerates our ability to deliver cleaner energy, generate significant earnings in a fast-growing sector and help reduce emissions. This could help BP take a significant stride toward our net zero ambition.”

Archaea was founded in 2018 and went public in September 2021 following a special purpose acquisition company (SPAC) transaction that combined it with Aria Energy. It has continued to grow through further deals, such as the acquisition of INGENCO.

BP’s acquisition of Archaea will be the largest ever RNG acquisition, surpassing Chevron Corp’s $3.15bn buyout of biodiesel maker Renewable Energy Group Inc.

Richard Summerfield