Chevron acquired Renewable Energy Group (REG) for $3.15 billion to bolster its clean energy business. Renewable Energy Company is a producer and distributor of cleaner, renewable fuels such as diesel and biodiesel based in Iowa. REG is also North America's largest producer of biodiesel and renewable diesel. These fuels are critical in assisting the transportation sector to reduce carbon emissions. Renewable Energy Company, which is now a Chevron subsidiary, will be headquartered in Ames. What does this all mean for Chevron?
Cost of The Acquisition
Chevron previously stated that they would acquire the REG for $3.15 billion in cash. This was the company's largest low-carbon deal during Mike Wirth's four-year tenure as CEO. Chevron paid $61.5 per share for the biodiesel producer. The cost represents a premium of more than 40% over the closing cost of the company.
What The Acquisition of Renewable Energy Group Means to Chevron
This agreement is projected to double Chevron's capability for producing renewable fuels to 100,000 barrels per day by 2030. The acquisition of REG is intended to assist the firm in achieving these objectives and expedite its expansion. This capacity is aimed at fulfilling the project's strong demand for renewable energy as corporations and governments transition away from carbon-emitting fuels such as oil and gas. Chevron is one of the world's 400 million businesses determined to enhance their production and expand their businesses.
Chevron, like other major participants in the fossil fuel business, has been under pressure from investors to contribute to the advancement of low-carbon technology and to decrease its carbon impact. The enhanced fuel capacity would boost the company's progression towards meeting its objectives.
Benefits Of The Acquisition
Additionally, the acquisition is expected to expand the company's feedstock supplies and pretreatment capabilities. Chevron, like other major fossil fuel companies, has been pressed by investors to accelerate the transition to a low-carbon economy. They can do this by scaling up technologies and lowering their carbon footprint. Biodiesel, a product of the Renewable Energy Group, emits about 86% fewer greenhouse gases than petroleum.
The need to increase its production of renewable fuels pushed Chevron to acquire the Renewable Energy Group. The deal is expected to increase growth at Chevron by increasing its production capacity to serve the growing demands of renewable fuels. The company has also taken other expansion measures to push the company to produce 34 million gallons of renewable diesel per year.