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Year in Review: Chevron buying Renewable Energy Group for $3.15B was a Deal of the Week

December 2, 2022

Through the end of December, we're taking a look back on the Deals of the Week from 2022. This was the Deal of the Week for the Houston Business Journal's March 4-10 edition.

The deal closed in June.

Since the Chevron deal was announced, at least two other energy giants with major presences in Houston announced similar RNG-related deals. In October, BP PLC (NYSE: BP) announced a $4.1 billion deal to acquire Houston-based Archaea Energy Inc. (NYSE: LFG). Shell Petroleum NV, a wholly owned subsidiary of Shell PLC (NYSE: SHEL), inked a $2 billion deal in November to acquire Denmark-based Nature Energy Biogas A/S from Davidson Kempner Capital Management LP, Pioneer Point Partners and Sampension.

Energy supermajors are recognizing the value that some of the pure-play renewables companies are bringing to market, Matthew Blair, managing director of refining and chemicals research at investment bank Tudor, Pickering, Holt & Co., told the Houston Business Journal in October.

The original story from March 2022 appears below.

The skinny

Chevron Corp. (NYSE: CVX) will acquire Iowa-based Renewable Energy Group Inc. (Nasdaq: REGI) to boost its renewable fuel operations. Although based in San Ramon, California, Chevron has around 8,000 employees in the Houston area.

The details

Chevron will pay $61.50 per share in cash for the outstanding shares of REGI, totaling about $3.15 billion. That represents a premium of about 57% on REG's 30-day average stock price as of Feb. 25.

The deal is expected to close in the second half of 2022. Chevron’s renewable fuels business, Renewable Fuels - REG, will then be headquartered in Ames, Iowa. REG CEO Cynthia "CJ" Warner is expected to join Chevron's board of directors.

The Chevron backstory

Chevron expects the acquisition to accelerate its efforts to grow renewable fuels production capacity to 100,000 barrels per day by 2030. However, that's just a fraction of Chevron's record production of around 3.1 million net oil-equivalent barrels per day during 2021, according to the company's latest annual report.

Last year, Chevron announced plans to invest more than $10 billion on low-carbon projects by 2028, including $2 billion to lower the carbon intensity of its operations. During 2021, Chevron achieved the first production of renewable fuels at its refinery in El Segundo, California.

The REG backstory

REG produces biodiesel and renewable diesel, which can be integrated with Chevron's refining capacity to meet various federal and state-level low-carbon fuel standards.

Chevron noted its cash flow will increase further after the expansion of REG's facility in Geismar, Louisiana, is complete. REG acquired the site — the first renewable diesel production facility in the U.S., per the company — in 2014. In October, REG held a groundbreaking ceremony for the improvement and expansion project. Improvements will include upgraded marine logistics to enable global trading of feedstocks and fuel. The $950 million project will increase the facility's total production capacity from 90 million gallons per year to 340 million gallons per year.

REG also previously operated a local biodiesel plant in Seabrook, but it shut down in November 2021 after 13 years in operation.

The industry backstory

The U.S. Energy Information Administration anticipates U.S. production capacity for renewable diesel to increase significantly through 2024 based on the number of new project announcements under construction or in development.

The players

Goldman Sachs & Co. LLC is acting as financial adviser to Chevron. Paul, Weiss, Rifkind, Wharton & Garrison LLP is acting as legal adviser to Chevron. Guggenheim Securities LLC is acting as financial adviser to REG, and Latham & Watkins LLP is acting as REG's legal adviser.

By Olivia Pulsinelli, Houston Business Journal