TIDMBP.
RNS Number : 1322D
BP PLC
17 October 2022
press release
17 October 2022
bp accelerates and expands in bioenergy, agreeing to
buy leading US biogas company Archaea Energy
-- Accelerates bioenergy growth
- Acquisition of a leading US renewable natural gas (RNG)
producer will accelerate growth of bp's strategic bioenergy
transition growth engine
- Operates 50 RNG and landfill gas-to-energy facilities across
US, with development pipeline supporting potential for around
five-fold increase in RNG volumes by 2030
- Doubles the EBITDA bp expects from biogas to around $2 billion
by 2030; supports increase in bp's aim for EBITDA from transition
growth businesses by 2030 from $9-10 billion to more than $10
billion
-- Adds distinctive value
- Builds on bp's existing biogas business - expanding in the US,
a key fast-growing geography for biogas
- Expect additional distinctive value through integration with
bp's trading capabilities and global customer relationships
-- Maintains financial discipline
- $3.3 billion cash acquisition; acquisition multiple of around four times(1)
- Remain committed to disciplined financial frame; five
priorities unchanged , including no change to dividend or buyback
guidance
- Expected to be accretive to both earnings and free cash flow
per share, post integration, and to deliver double-digit
returns
-- Supports net zero ambition
- Biogas growth supports both customer decarbonization goals and
bp's aim to reduce carbon intensity of energy products it sells
-----------------------------------------------------------
In a move that will expand and accelerate the growth of its
strategic bioenergy business, bp today announced that it has agreed
to acquire Archaea Energy Inc., a leading producer of renewable
natural gas (RNG) in the US. 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(2)
.
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% of its total annual capital expenditure by 2025, aiming to grow
this to around 50% by 2030.
Acquiring Archaea will expand bp's presence in the US biogas
industry, enhancing its ability to support customers'
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(3)
.
Bernard Looney, bp chief executive, said :
"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.
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."
Archaea Energy
Based in Houston, Texas, Archaea Energy is a leading RNG
producer, operating 50 RNG and landfill gas-to-energy facilities
across the US, producing around 6,000 barrels of oil equivalent a
day (boe/d) of RNG. At closing its production would be expected to
provide an immediate 50% 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
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.
Archaea has extensive operational expertise and experience with
an industry-leading modular and integrated approach to biogas
projects that provides short development lead-times. The business's
innovative and highly experienced management and operations team
has a proven track record and will remain with bp on
completion.
Nick Stork, CEO of Archaea Energy, said:
"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. 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."
Jon Vander Ark, Republic Services president and chief executive
officer, said:
"The acquisition of Archaea by bp allows us to accelerate
decarbonization through our innovative joint venture with Archaea.
With our shared focus on sustainability, this joint venture
provides additional opportunities to work together on other
decarbonization and environmental services initiatives."
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.
bp sees the opportunity to deliver additional distinctive value
through the integration of the business with bp's trading
capabilities and broad customer base - bp is a leading marketer of
natural gas in North America, with many customers looking to
decarbonize. Demand for biogas is also diversifying with
opportunities for growth into areas such as LNG, renewable
hydrogen, and power for EV charging.
Dave Lawler, chairman and president of bp America, said :
"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."
Accelerates earnings growth, while maintaining discipline
bp has agreed to acquire Archaea for $3.3 billion in cash, or
$26 per share, representing a 38% premium to Archaea's 30-day
volume weighted average share price(4) . 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.
Post integration, bp expects the transaction to be accretive to
both its earnings per share and free cash flow per share.
The business is expected to deliver rateable earnings growth.
From around $140 million today, bp is targeting EBITDA (5) from the
business, when integrated with bp, of more than $500 million in
2025 and is aiming for around $1 billion by 2027, following
completion of the development pipeline(6) . This underpins an
acquisition multiple of around four times(1) . bp's investment is
expected to deliver double digit returns.
As a result of the agreed acquisition, bp has doubled to around
$2 billion its aim for the contribution to EBITDA from biogas by
2030. bp now aims for more than $10 billion EBITDA to be generated
by its transition growth businesses by 2030(7) - up from previous
guidance of $9-10 billion.
bp remains committed to its disciplined financial frame, with
its five priorities unchanged. A resilient dividend remains bp's
first priority with guidance unchanged. bp remains focused on
maintaining a strong investment grade credit rating. bp's
medium-term(8) capital expenditure guidance is unchanged at $14-16
billion a year. And bp's commitment to return 60% of full year
surplus cash flow(9) through share buybacks in 2022, subject to
maintaining a strong investment grade credit rating, is unchanged.
In setting the buyback, bp's board will continue to take into
account the cumulative level of and outlook for surplus cash flow,
including the effect of this transaction.
Renewable natural gas
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 5% by 2025 and aims to
reduce it by 15-20% by 2030, both against a 2019 baseline.
Contacts:
bp press office, London: bppress@bp.com , +44 (0)7831 095541
bp US media affairs: uspress@bp.com
Notes:
-- Morgan Stanley & Co. LLC is acting as financial adviser
to bp and Freshfields Bruckhaus Deringer as lead legal adviser to
bp.
-- Archaea Energy Inc. is one of the largest RNG producers in
the US, with an industry-leading platform and expertise in
developing, constructing, and operating RNG facilities to capture
waste emissions and convert them into low carbon fuel. Its
innovative, technology-driven approach is backed by significant gas
processing expertise, enabling Archaea to deliver RNG projects that
are expected to have higher uptime and efficiency, faster project
timelines, and lower development costs. Archaea partners with
landfill and farm owners to help them transform potential sources
of emissions into RNG, transforming their facilities into renewable
energy centres. Additional information is available at
www.archaeaenergy.com .
-- Republic Services, Inc. is a leader in the environmental
services industry. Through its subsidiaries, the company provides
customers with the most complete set of products and services,
including recycling, solid waste, special waste, hazardous waste,
container rental and field services. Republic's industry-leading
commitments to advance circularity, reduce emissions and
decarbonize operations are helping deliver on its vision to partner
with customers to create a more sustainable world. Additional
information is available at RepublicServices.com .
Footnotes:
(1) Acquisition enterprise value around four times expected 2027
EBITDA
(2) Archaea Energy net debt sourced from 2Q 2022 10Q, adjusted
for disclosed subsequent financing activity.
(3) bp's aim 3 is to reach net zero for the carbon intensity of
the energy products bp sells. Any interim target or aim in respect
of bp's aim 3 is defined in terms of reductions in the carbon
intensity of the energy products bp sells (in grams CO2e/MJ)
relative to the baseline year of 2019. (Work is ongoing to confirm
an assured baseline for this aim to incorporate the inclusion of
physically traded energy products).
For the purposes of aim 3, an energy product is a product that
is used by an ultimate end user to satisfy an energy demand. In the
case of fuels, to burn them to release their calorific content, and
in the case of electricity to provide work or heat. A refined
product such as a lubricant base stock does not count as an energy
product as it is not used to provide energy in its use phase. Crude
oil does not count as an energy product except in the rare cases
where it is used by an end user to satisfy energy demand.
Physically traded energy product includes trades in energy
products which are physically settled in circumstances where bp
considers their inclusion to be consistent with the intent of the
aim. It therefore excludes, for example, financial trades, and
physical trades where the purpose or effect is that the volumes
traded net off against each other.
(4) Premium calculated using Archaea Energy Inc. (NYSE: LFG)
30-day volume weighted average share price as of 14 October 2022
(Bloomberg)
(5) EBITDA: replacement cost profit before interest and tax,
excluding net adjusting items, adding back depreciation, depletion
and amortization and exploration write-offs (net of adjusting
items).
(6) Projected financial information in this release represents
bp's view of the business when integrated with bp.
(7) At $60/bbl Brent (2020, real) and bp planning assumptions.
(8) 2023-30.
(9) Surplus cash flow refers to the net surplus of sources of
cash over uses of cash, after reaching the $35 billion net debt
target. Sources of cash include net cash provided by operating
activities, cash provided from investing activities and cash
receipts relating to transactions involving non-controlling
interests. Uses of cash include lease liability payments, payments
on perpetual hybrid bond, dividends paid, cash capital expenditure,
the cash cost of share buybacks to offset the dilution from vesting
of awards under employee share schemes, cash payments relating to
transactions involving non-controlling interests and currency
translation differences relating to cash and cash equivalents as
presented on the condensed group cash flow statement.
Cautionary statement:
In order to utilize the 'safe harbor' provisions of the United
States Private Securities Litigation Reform Act of 1995 (the
'PSLRA') and the general doctrine of cautionary statements, bp is
providing the following cautionary statement.
This document contains certain forecasts, projections and
forward-looking statements - that is, statements related to future,
not past events and circumstances - with respect to the financial
condition, results of operations and businesses of bp and certain
of the plans and objectives of bp with respect to these items.
These statements are generally, but not always, identified by the
use of words such as 'will', 'expects', 'is expected to',
'targets', 'aims', 'should', 'may', 'objective', 'is likely to',
'intends', 'believes', 'anticipates', 'plans', 'we see' or similar
expressions. In particular, the following, among other statements,
are all forward-looking in nature: expectations in relation to
completion of the transaction described including the outcome of
third party approvals, the expected timing of completion and the
amount and timing of the consideration and how it will be funded;
plans and expectations relating to growing bp's transition growth
engines through this decade including that investment into bp's
transition growth businesses will reach more than 40% of bp's total
capital expenditure by 2025 and around 50% by 2030; plans and
expectations for bp's capital expenditure over the medium-term to
be $14-16 billion; plans and estimates relating to the growth,
development and value creation potential of Archaea's business
including expectations to grow earnings; expectations for the
completion of Archaea's projects and development pipeline;
expectations to increase production by around five-fold by 2030;
plans and expectations in relation to Archaea's management and
operations team; expectations for Archaea's business when
integrated with bp to deliver rateable earnings growth including
targeting EBITDA of more than $500 million by 2025 and aim for
around $1 billion by 2027; expectations that biogas will contribute
around $2 billion of EBITDA in 2030 and bp's aim for transition
growth businesses to contribute more than $10 billion EBITDA by
2030; expectations for the investment to deliver double digit
returns and statements regarding additional distinctive value
creation; plans and expectations relating to bp's strategy,
including bp's transformation to an integrated energy company;
expectations that the transaction will be accretive to earnings and
free cash flow on a per share basis post integration; expectations
and plans regarding Archaea's joint venture with Republic Services
Inc.; expectations that the transaction has the potential to take
bp's biogas supply volumes to around 70 thousand barrels oil
equivalent per day globally by 2030; expectations for the
transaction to advance bp's net zero ambition including bp's Aim 3
to reduce to net zero the carbon intensity of the energy products
bp sells by 2050 or sooner; statements relating to demand for
renewable natural gas including within scenarios described in the
bp Energy Outlook 2022; and plans and expectations regarding bp's
financial frame including plans and expectations for future
dividends, plans and expectations regarding bp's credit rating,
including in respect of maintaining a strong investment grade
credit rating, plans and expectations for bp's annual capital
expenditure, plans and expectations for bp's cash balance point,
plans and expectations regarding the allocation of surplus cash
flow and plans and expectations regarding the amount and timing of
share buybacks.
By their nature, forward-looking statements involve risk and
uncertainty because they relate to events and depend on
circumstances that will or may occur in the future and are outside
the control of bp. Actual results or outcomes, may differ
materially from those expressed in such statements, depending on a
variety of factors, including the risk factors discussed under
"Risk factors" in bp's Annual Report and Form 20-F 2021 as filed
with the US Securities and Exchange Commission and in any of our
more recent public reports.
Our most recent Annual Report and Form 20-F and other period
filings are available on our website at www.bp.com or can be
obtained from the SEC by calling 1-800-SEC-0330 or on its website
at www.sec.gov.
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