Suburban Propane subsidiary to pay $190M for renewable natural gas assets

A subsidiary of Suburban Propane will acquire a platform of new renewable natural gas assets and is forming a partnership with the seller.

Suburban Renewable Energy LLC announced the $190 million purchase of two operational biogas facilities from – and the collaboration with – Equilibrium Capital Group – on Dec. 28.

Based in Whippany, Suburban Propane is a nationwide distributor of propane and other energy products to local communities in addition to being an investor in low carbon energy alternatives. The wholly owned Suburban Renewable business houses the company’s existing renewable assets: Oberon Fuels, Independence Hydrogen Inc. and Suburban RNG.

According to the announcement, the parties have cleared the necessary regulatory approvals for a simultaneous signing and closing of the transactions.

Stivala

“This investment meaningfully advances our strategic goal of building out a renewable energy platform to help drive the energy transition to a low carbon economy. We are excited to be partnering with the Equilibrium team, which has a proven track record of sourcing, developing and managing high quality renewable natural gas producing assets,” Michael Stivala, president and CEO of Suburban Propane, said in a statement. “We look forward to building upon and advancing this opportunity as we seek to leverage Equilibrium’s seasoned management team with a well-established network of operators, engineering and construction providers and off-takers, and a strong commitment to sustainable investments.

“The scalable platform complements our existing portfolio of renewable energy assets, either as a stand-alone RNG distributor, or as a pathway to [renewable dimethyl ether] and hydrogen production,” Stivala added.

Suburban highlighted a number of other strategic motivations for the deal, including: the immediate scale it offers to the company’s existing renewable energy investments and assets, the opportunities for synergies between acquired assets and the company’s existing investments, and gaining the expertise of the Equilibrium team as well as a platform for accelerated growth in the renewables fuels sector.

Additionally, Suburban said the deal enhances its position in a developing market of RNG as a drop-in replacement for traditional natural gas, and that it will benefit from tax credits under several state low carbon fuel standards and the Inflation Reduction Act of 2022.

Better together

According to Suburban, the RNG platform will involve the partners forming a new development company with a goal of investing in and developing $155 million of future RNG projects. Of those, and once such efforts are fully funded, Suburban Renewables will own approximately 70%, while Equilibrium will own approximately 30%.

The effort includes:

• A large-scale RNG facility in Stanfield, Ariz., that currently operates with seven anaerobic digesters, manure rights from approximately 55,000 dairy cattle and an interconnect with an interstate pipeline.
• A facility in Columbus, Ohio, that currently receives tipping fees from several large food and beverage companies to process food waste into fertilizer and biogas, with an active development project to upgrade the latter into RNG for the use in the transportation sector.
• Option rights for a third RNG facility in the Midwest, currently being developed by Equilibrium.

“Bio-fuels and renewable natural gas are now mainstream commodities in the transition to low carbon energy and decarbonization of our economy. The major challenge will be scaling cost-effective production supplies to meet market demand,” Dave Chen, chief executive officer of Equilibrium, said in a statement. “Equilibrium is taking our experience investing in, developing, and operating scalable RNG production infrastructure, and partnering with Suburban’s market leadership and expertise in gas logistics, trading and user applications, to build assets that drive towards these goals.”

Suburban said the deal is expected to be accretive to its distributable cash flow in fiscal 2024, as earnings benefit from continued expansion and production efficiencies. According to its announcement, the purchase would be funded via approximately $120 million under the company’s revolving credit facility and the assumption of about $80 billion of outstanding green bonds with an attractive interest rate.

Wells Fargo Securities LLC served as exclusive financial advisor to Suburban. Evercore served as the exclusive financial advisor to Equilibrium Capital Group.