BP to buy Houston biogas company for $4.1 billion as it shifts from fossil fuels

BP said on Monday it planned to buy Houston’s biogas company Archaea Energy in a deal that will advance the British oil giant’s ambitious goal of switching from fossil fuels.

The $4.1 billion acquisition of Archaea, one of the first players in the emerging renewable natural gas industry, is expected to close this year.

Archaea operates 50 landfill gas-to-energy facilities and plants producing renewable natural gas, or RNG, a fuel from waste that can be used in place of fossil fuels. It has 80 additional projects in development, including 40 RNG facilities it is building as part of a $1.1 billion venture with waste collection giant Republic Services. The company said earlier this year that of its global workforce of about 400, about 100 are in Houston.

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Demand for waste-derived gas, or biogas, is growing — particularly as a transportation fuel — as companies look for alternatives that can help them reduce their carbon output. Oil and gas companies such as Kinder Morgan are investing in emerging industry as part of their energy transition strategies. Waste Management said this year it would invest $825 million in RNG at its landfills, with the goal of providing enough energy to power the equivalent of one million homes and power its entire fleet of natural gas vehicles by 2026.

The deal advances BP’s biogas business – a pillar of its energy transition plans – helping it access more global markets with the equivalent of around 70,000 barrels of oil a day by 2030 BP said it hopes that by 2030 half of its capital expenditure will be spent on supporting the transition to high-carbon fuels.

“With our proposed acquisition of Archaea Energy, we are doing exactly what we said we would do, investing with discipline in our transitional growth engines while focusing on creating long-term shareholder value. “said BP CEO Bernard Looney. “It’s a good deal, combining Archaea’s proven expertise in biogas development and offtake with BP’s commercial capabilities and scale, a strong balance sheet and access to customers, and customers who are looking for more and more help to decarbonize their own energy demand.”

Archaea Energy captures methane produced by landfills and refines it to power power plants, homes and vehicles. Processed renewable natural gas is interchangeable with conventional natural gas. In vehicles, it burns cleaner than traditional diesel or gasoline, according to the Environmental Protection Agency, and meets federal and state standards for low-carbon fuel. RNG can also be liquefied for export or compressed for use as a commercial transportation fuel. Republic Services uses approximately 20% of its vehicles with compressed natural gas.

Projects in Archaea’s pipeline would increase its RNG volumes fivefold by 2030, BP said. Archaea’s joint venture with Republic, which is not expected to be affected by the acquisition, is attracting the attention of transportation fuel markets, which see RNG as a cheaper way to meet carbon emissions standards than alternatives, such as switching to electric vehicles.

“Archaea has become one of the largest and fastest growing RNG platforms in the United States,” said the company’s CEO, Nick Stork, “and today’s announcement will enable this company to realize its full potential.

Shares of Archaea rose $9.14, or 54%, to $26.02 on Monday, while shares of BP rose 14 cents to $30.48.

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