Chevron Acquires Renewable Energy Group for $3.15B, Ups Its Clean Energy Game

Chevron Corp (NYSE: CVX), the second-largest producer of oil and gas in the US, is making its biggest bet yet on alternative fuels, with the purchase of Renewable Energy Group Inc (REGI.O), a maker of biodiesel. The deal of $3.15 billion translates to a price of $61.50 per share, a premium of almost 40 percent over the closing price last Friday. Understandably, premarket trading saw a rise of 37% in the price of the share.

Given their significant share in global emissions, governments, as well as investors, are putting pressure on the major oil firms to reduce their carbon footprint and step up in the global battle against climate change. Several federal, as well as state subsidies, have been introduced as a means to incentivize the decarbonization of fuels. With the help of these subsidies, many oil firms have been upping their renewable diesel production and capacity. 

In the month of September, Chevron committed $10 billion for reducing its carbon emissions through 2028. Of this amount, $3 billion has been identified for renewable fuels. It has also targeted itself to cut operational emissions to a net-zero figure by 2050.

Agricultural waste and crops grown specifically to serve as feedstock for fuel is what biofuels are made from. The Renewable Energy Group based in Ames, Iowa, produces renewable diesel as well as biodiesel. Though both renewable diesel and biodiesel are from the same feedstock, a different refining process is used for biodiesel. In terms of chemical composition, this makes it similar to ultra-low sulfur.

The company has made known its intention to blend biodiesel with renewable diesel in some markets. Talking to Reuters, Mark Nelson, executive vice president of downstream and chemicals, said, “Most people see (biodiesel) as growing in the U.S. and Southeast Asia … and view it as a blendstock to get optimum margin because it’s less expensive than renewable diesel.”

It is estimated by the Energy Information administration that renewable diesel production capacity in the United States will go up from the current 1 billion gallons to over 5 billion gallons per year, a five-fold increase, by the year 2024.

Chevron’s progress towards its goal of expanding its production capacity of renewable fuels to over 100,000 barrels per day by 2030, is expected to be boosted by this acquisition, as will be their pre-treatment facilities as well as feedstock supplies.

The company, however, does not intend to report its renewables business financials separately, any time soon, their chief executive Mike Wirth informed Reuters.

Second half of the year seems to be the likely closure date for this transaction. It is expected to add to the earnings of Chevron in Year 1. Thereafter, once the Renewable Energy Group’s Geismar expansion happens in Louisiana, to its free cash flows as well.

The financial advisor for the deal for Chevron was Goldman Sachs & Co. while Renewable Energy was advised by Guggenheim Securities.

Joy Pace

Joy Pace

Joy is passionate about business and technology. She has a bachelor's degree from the University of Michigan and worked in the private sector for 20 years before finding her passion for research and writing. For the last five years, Joy has written about breaking trends in business and tech. She covers both business and technology for ConsultanHub.com. Contact her at [email protected]

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