BP to buy US biogas producer Archaea for US$4.1b

BP has agreed to acquire biogas producer Archaea Energy Inc for about US$4.1 billion including debt, the latest step in the UK energy giant’s expansion into lower-carbon fuels.

BP will pay US$26 per share, a 38 per cent premium to the average share price in the 30 days to Oct 14, Archaea said on Monday (Oct 17) in a statement. The Houston-based company, which captures waste-gas emissions from landfills and farms, will become a key part of BP’s bioenergy business and accelerate its growth, said the statement. 

Archaea fits with BP’s “strategic focus on bioenergy”, Nick Stork, chief executive officer and co-founder of Archaea, said in the statement. The deal will “increase the role of renewable natural gas in helping customers reach their long-term climate goals”.

Archaea was formed in 2021, when Rice Acquisition Corp merged with two other companies to create a giant in so-called renewable natural gas. The environmental benefit of the fuel comes largely from preventing emissions of the powerful greenhouse gas methane, which is created by the decomposition of organic waste under certain conditions. 

The company captures biogas at landfills or farms and processes it into pipeline-quality natural gas. Burning the fuel still releases carbon dioxide, but has a lower overall climate impact than if the methane had been allowed to simply vent into the atmosphere. 

Under CEO Bernard Looney, BP has sought to position itself at the leading edge of major oil companies’ efforts to curtail greenhouse gases and transition to cleaner forms of energy. It was one of the first to promise to achieve net-zero emissions by 2050 and has made big bets on offshore wind and electric cars. 

Even as the industry made record profits this year on the surge in oil and gas prices after Russia’s invasion of Ukraine, companies including BP, TotalEnergies and Shell have said they will continue to channel a growing portion of their cash flow into low-carbon energy sources, while transitioning away from fossil fuels as the main source of their revenue. 

In its latest guidance, Archaea said it planned to produce 10.9 billion cubic feet of gas a year, about 0.5 per cent of BP’s total gas output. 

BP shares erased earlier gains and were 0.5 per cent lower at 452.7 pence as of the lunch hour in London. 

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At the time of the 2021 deal, Archaea was valued at US$1.15 billion. Since then, Russia’s invasion of Ukraine has boosted natural gas prices worldwide, while President Joe Biden’s push for action against climate change is set to increase demand for lower-carbon fuels. 

The sale to BP is “the best way to create a stronger platform to achieve Archaea’s full potential, while maximising value for our shareholders”, Daniel Rice, chairman of Archaea’s board and architect of the transaction that created Archaea. 

Bank of America Securities acted as financial adviser to Archaea and Kirkland & Ellis acted as the company’s legal adviser. BLOOMBERG