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Shares in Clean Energy Fuels Corp. (NASDAQ: CLNE), a leader in natural gas for transportation, are skyrocketing on news that it has reached a deal to sell its RNG (renewable natural gas) production facilities at a number of Republic Services (NYSE: RSG) landfills to oil giant BP plc (ADR) (NYSE: BP), for as much as $180 million. At 12:25 p.m. EST, Clean Energy's stock was up 16.5%.
Shares of BP were up about 1.2% -- what is a big deal for Clean Energy is barely a blip on the radar for the much-bigger integrated energy company.
Image source: Clean Energy Fuels Corp.
According to the terms of the deal, BP is acquiring "RNG production facilities located at Republic Services landfills in Canton, Michigan and North Shelby, Tennessee, [Clean Energy Fuels'] 50% ownership interest in joint ventures formed in November 2016 to develop new RNG production facilities at a Republic Services landfill in Oklahoma City, Oklahoma and an Advanced Disposal landfill near Atlanta, Georgia and [Clean Energy Fuels'] third party RNG supply contracts."
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In return, Clean Energy Fuels will receive $155 million in cash, paid as $30 million at closing, and $125 million by April 3, 2017. The company could receive as much as an additional $25 million in incentives over five years after the sale. Clean Energy Fuels will also enter into a long-term supply contract with BP for the RNG at these facilities, which it sells under its Redeem trade name for use in vehicles.
This news can be taken on the surface as a little good, and a little bad. On one hand, the company is selling off assets which produce its most profitable, fastest-growing product, Redeem. On the other hand, the company has been issuing stock at rock-bottom prices over the past year to pay down its debt balance, and this asset sale will significantly reduce the need to sell more shares to raise capital in the near term.
Even factoring in the negative of selling off assets, this looks like a really smart move for Clean Energy. The company's core business is selling fuel, and building and operating stations for its customers, and its RNG production business is very capital-intensive. By selling these assets to BP, the company will not only raise up to $180 million in cash, but will also reduce its future capital expenditures related to expanding, improving, and maintaining these facilities. Furthermore, as the largest seller of natural gas for transportation, with by far the biggest network of stations in North America, the company will remain a key partner for BP when it comes to monetizing the RNG produced from these facilities.
In summary, Clean Energy will still have access to what it really needs from these facilities, but without the capital obligations, and will also gain a substantial amount of cash it can use to further reduce its debt and lower expenses.
Jason Hall owns shares of Clean Energy Fuels. Jason Hall has the following options: long January 2018 $3 calls on Clean Energy Fuels. The Motley Fool owns shares of and recommends Clean Energy Fuels. The Motley Fool recommends Republic Services. The Motley Fool has a disclosure policy.