-ps7sy.png)
The transition of the global oil majors from their legacy fossil fuel-focussed business to a renewable energy-based model always makes for a fascinating story, primarily due to the complexities of this shift. While wind and solar assets have been integrated into the companies’ businesses primarily through strategic partnerships, biofuels assets hold the most synergies with oil majors' existing operations, primarily due to the similarities in midstream and downstream aspects of both value chains.
Oil majors can leverage their processing and transmission networks, along with their well-established retail and marketing arms to seamlessly integrate biofuels production assets into their existing business structure. Further, the rapidly evolving demand for clean fuels across the world and the economics of biofuels assets, which are appealing only at sizeable production volumes that require large-scale investments, make the sector an attractive opportunity for companies with large capex budgets and operational expertise.
2022 witnessed three of the largest biofuel deals globally, with Chevron, Shell, and bp effecting multi-billion dollar corporate takeovers in the US and Europe. In Q4 2022, Shell and bp took over companies with large portfolios of operational and under-development renewable natural gas (RNG) assets. The Enerdatics research team has analyzed the strategies of both oil majors, through these transactions, and summarised its findings on a single slide, the highlights of which are:
– The Shell, bp deals represent similar transaction enterprise value ($M)/BOE per day metrics, however, the rationale behind each deal is understood to be significantly different
– Shell's acquisition of Nature Energy is focused on the company's current production, primarily due to the positive effects of the demand-supply imbalance in Europe's gas market, which are expected to persist in the medium term
– Meanwhile, bp's target - Archaea Energy - projects a fivefold increase in RNG output from their US pipeline by 2030, while Nature Energy projects a 2.5X increase. The significant development pipeline, coupled with the recently announced tax credits for RNG in the US, are believed to be bp's rationale behind the deal
– Shell's acquisition of Nature Energy represents a higher transaction EV ($M)/EBITDA metric (62) than the bp-Archaea Energy deal (48)
– The higher EBITDA metric is believed to be driven by higher domestic gas prices, continued volatility in supply amid Russia's invasion of Ukraine, and the rising share of biogas in the Danish gas grid
– The high EBITDA metrics in both deals are indicative of the synergies that oil majors seek to achieve in the RNG space, leveraging their existing retail and marketing businesses
The above analysis is proprietary to Enerdatics’ energy analytics team, based on the current understanding of the available data. The information is subject to change and should not be taken to constitute professional advice or a recommendation.
Click to know more about Enerdatics' Renewable Energy M&A, Finance, PPA, and Projects databases.