BP has agreed to acquire Archaea Energy Inc., a producer of renewable natural gas (RNG) in the U.S. The agreed acquisition, which is subject to regulatory and Archaea shareholder approval, will be for $3.3 billion in cash, as well as around $800 million of net debt.
Bioenergy is one of five strategic transition growth engines that BP intends to grow rapidly through this decade. BP expects investment into its transition growth businesses to reach more than 40 percent of its total annual capital expenditure by 2025, aiming to grow this to around 50 percent by 2030.
Acquiring Archaea will expand BP's presence in the U.S. biogas industry, enhancing its ability to support decarbonization goals and also progressing its aim to reduce the average carbon intensity of the energy products it sells. BP aims to reduce that carbon intensity to net zero by 2050 or sooner.
Based in Houston, Texas, Archaea Energy operates 50 RNG and landfill gas-to-energy facilities across the U.S., producing around 6,000 barrels of oil equivalent a day (boe/d) of RNG. At closing, Archaea's production would be expected to provide an immediate 50 percent increase to BP's biogas supply volumes.
Archaea has a development pipeline of more than 80 projects that underpin the potential for around five-fold growth in RNG production by 2030. Earlier this year, it announced a joint venture with Republic Services, Inc. to develop 40 RNG projects across the U.S. 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.
Archaea has operational expertise and experience with a modular and integrated approach to biogas projects that provides short development lead times. The company's management and operations team has a proven track record and will remain with BP on completion.
The acquisition of Archaea has a strong strategic fit with BP's existing biogas business, enabling expansion of its position in the U.S. and potentially also globally, including the U.K. 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.
Global biogas demand is growing rapidly. In BP's Energy Outlook 2022, biogas grows more than 25-fold from 2019 to 2050 in both the accelerated and net zero scenarios.
Biogas is generated by the decomposition of organic material at landfill sites, anaerobic digesters, and other waste facilities. Archaea's operations process biogas - that would have been flared or vented if it were not captured - to produce pipeline-quality RNG or to generate power.
RNG can be used interchangeably with fossil fuel-based natural gas - including as transport fuel, in power generation and in heating - but, as it is derived from organic waste, its use results in lower lifecycle greenhouse gas emissions. Projects such as Archaea's also have the potential to be integrated with technology such as carbon capture and storage to further reduce lifecycle greenhouse gas emissions.
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 five percent by 2025 and aims to reduce it by 15 to 20 percent by 2030, both against a 2019 baseline.