A pair of deals announced on 17 October finds biofuels in the spotlight.
In the largest deal of the day, BP announced its largest low-carbon energy acquisition with its planned purchase of US biogas producer Archaea Energy for $4.1 billion, while Canada's TC Energy made a smaller splash with its $29.3 million investment in renewable natural gas (RNG) production facility near the famous Jack Daniel's Distillery in Lynchburg, Tennessee.
Archaea Energy claims to be the leading producer of RNG in the US, operating 50 RNG and landfill gas-to-energy facilities across the US, producing about 6,000 BOE/D of RNG. The company processes organic waste from landfills and farms to transform the potential emissions into RNG.
BP is purchasing Archaea for $3.3 billion in cash, or $26 per share. 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.
The UK-based oil and gas major said the acquisition of the Houston-based biogas producer would immediately increase its biogas supply volumes by 50% and adds Archaea’s development pipeline of more than 80 projects to BP’s portfolio.
In June, Archaea and its joint-venture partner Republic Services, a major US landfill operator, signed a $1.1 billion deal to develop 40 RNG projects across the US, part of this pipeline. The joint venture will convert landfill gas into pipeline-quality RNG that can be used for a variety of applications to displace conventional natural gas.
“Our biogas team is already one of the leading suppliers of renewable natural gas in North 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,” said Dave Lawler, chairman and president of BP America.
For BP, bioenergy is one of its five strategic transition growth engines that it intends to rapidly grow 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, the oil major said in a release.
Global biogas demand is growing rapidly, and in BP’s Energy Outlook 2022 biogas is growing more than 25-fold from 2019 to 2050 in both the accelerated and net-zero scenarios.
“Archaea is a fantastic fast-growing business, and BP will add distinctive value through our trading business and customer reach. It will accelerate our key bioenergy growth engine, creating a real leader in the biogas sector, and support our net- zero ambition,” said Bernard Looney, BP chief executive, in the release.
“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.”
Increasing sales of RNG will support BP’s net-zero ambition, specifically its aim to reduce to net zero the carbon intensity of energy products it sells by 2050 or sooner. It has set an interim target to reduce this carbon intensity by 5% by 2025 and aims to reduce it by 15–20% by 2030, both against a 2019 baseline.
The acquisition of Archaea has a strong strategic fit with BP’s existing biogas business, enabling expansion of its position in the US and potentially also in key geographies globally, including the UK and Germany. 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, according to BP.
“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,” said Nick Stork, CEO of Archaea Energy, in the release.
“BP is a world-class partner with an operational history in the RNG value chain that is fully aligned with ours and our partners’, and I look forward to our hard-working team joining the BP organization to help achieve their bioenergy goals.”
Tennessee Twist
TC Energy's $29.3 million investment in a RNG production facility near the Jack Daniel's Distillery will see the Canadian operator producing RNG with a carbon-intensity score that is 50% lower than traditional natural gas, saving up to 16,000 tonnes of CO2e per year, according to the company.
The facility will be owned by Lynchburg Renewable Fuels and is being developed by 3 Rivers Energy Partners, also an owner in Lynchburg Renewable Fuels.
Once operational in 2024, a byproduct of the Jack Daniel’s distilling process will be broken down to generate methane gases recovered as biogas, according to the company.
A biogas upgrade plant will remove contaminants to produce pipeline-quality RNG that will be directly connected to a local natural gas utility. Liquid fertilizer will also be produced in the process, processed, stored, and distributed to meet local agriculture demand.
“This investment is our first in the production of renewable natural gas,” said Corey Hessen, TC Energy executive vice president and president, power & Energy solutions. “The production of RNG onsite at the Jack Daniel's Distillery offers TC Energy one more opportunity to meet the challenge of growing energy needs and reducing emissions while providing customers with access to an affordable, reliable, source of energy.”
TC Energy will market 100% of the RNG production and environmental attributes, which include renewable identification numbers and low-carbon fuel standards.
“Our goal is to create lasting partnerships that give organizations the ability to create a sustainable future by utilizing bio-waste to reduce energy and help sustain local agriculture,” said John Rivers, CEO of 3 Rivers Energy Partners. “What we are doing is a major step for Jack Daniel’s, the local agriculture, and our planet’s future.”
TC Energy and 3 Rivers Energy Partners have also committed to jointly develop future RNG projects, the companies said.
