6-K
1
a1328d.htm
BP AGREES TO BUY US BIOGAS FIRM ARCHAEA ENERGY
a1328d
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 6-K
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
for the
period ended 17 October, 2022
BP p.l.c.
(Translation
of registrant's name into English)
1 ST JAMES'S SQUARE, LONDON, SW1Y 4PD, ENGLAND
(Address
of principal executive offices)
Indicate
by check mark whether the registrant files or will file
annual
reports
under cover Form 20-F or Form 40-F.
Form
20-F |X|
Form 40-F
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Indicate
by check mark whether the registrant by furnishing the
information
contained
in this Form is also thereby furnishing the information to
the
Commission
pursuant to Rule 12g3-2(b) under the Securities Exchange Act
of
1934.
Yes
No |X|
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Exhibit
1.1
bp
agrees to buy US biogas firm Archaea Energy dated 17 October
2022
Exhibit 1.1
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.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
