Chevron plans to buy Ames-based biodiesel company Renewable Energy Group for $3.15 billion

Source: By Donnelle Eller, Des Moines Register • Posted: Tuesday, March 1, 2022

Ames Chamber of Commerce CEO Dan Culhane said his heart nearly stopped when he first caught wind that oil giant Chevron Corp. wanted to buy Renewable Energy Group, a home-grown Ames company that’s become a leading U.S. biodiesel producer.

A big corporate buyout can mean the end of a company’s presence in a community, Culhane said. So he was relieved to learn Monday that Chevron’s plan to for the $3.15 billion purchase calls for making Ames the center of its renewable fuels effort.

“It looks good for Ames and other facilities across the state where REG has invested,” Culhane said. “I’m thrilled.”

Chevron said in news release Monday it will purchase Renewable Energy Group, called REG, for $61.50 per share, a 57% premium that’s based on a 30-day average of share prices.

Share prices ended Monday at the $61.50 per share purchase price, climbing 40% from trading Friday.

After the deal closes, Chevron’s renewable fuels business, Renewable Fuels-REG, will be headquartered in Ames, where REG has its offices at 416 S. Bell Ave., the companies said.

CJ Warner, REG’s current CEO, is expected to join Chevron’s board of directors.

Ames will become Chevron’s epicenter of renewables

Chevron CEO Mike Wirth said in a call with analysts Monday that buying Renewable Energy Group is part of the California-based company’s push to reduce its carbon footprint. Biodiesel has up to 86% fewer greenhouse gas emissions than petroleum diesel.

The company has set a goal of reducing its carbon emissions from 2016 levels by the equivalent of 35% by 2028. It said in September it plans to spend $10 billion meeting that goal.

“We laid out plans to grow our renewable fuels capacity to about 100,000 barrels per day” by 2030, Wirth said, adding “this transaction is expected to accelerate our progress towards that goal and much more.”

Wirth said it made sense for Ames to be the epicenter of the company’s renewable fuel efforts, building on the experience REG and its predecessors have in producing renewable fuel.

Renewable Energy Group, founded in Ames in 2006

REG was founded in 2006 in Ames as a spinoff from West Central Cooperative in Ralston in northwest Iowa, which started making biodiesel in 1996 as a way to add value to soybean crops.

“As one of the founders of the modern renewable fuels industry, REG has continued to innovate, partner and grow to deliver value to all stakeholders. Its employees and culture are at the heart of its business,” Wirth said.

“Together, we expect to take the business to the next level,” he said.

Renewable Energy Group employs about 450 people in Iowa, 350 of them in Ames. In Iowa, the company owns three biodiesel plants — in Newton, Ralston and Mason City — and has terminals in Pleasant Hill, Ottumwa and Clear Lake.

It also operates a fuel delivery business based in Des Moines.

Wirth said REG is the leading U.S. biodiesel producer and can produce renewable fuel from a variety of materials. He said 70% of the feedstock REG uses to produce renewable fuel is “waste or second-use” products, such as used cooking oil, corn oil produced from ethanol production and tallow, a fat rendered from livestock.

Sam Margolin, an oil, gas and biofuels analyst with Wolfe Research, said acquiring REG gives Chevron not only personnel and technology, but sources for that feedstock.

“In this space, it’s important to have relationships with the agricultural industry, too, so that you can source feedstock efficiently,” Margolin said.

While it’s not clear how the purchase will affect REG’s employees in Ames, he said he would expect Chevron to boost its investment if the company is “going to run the entire renewable fuels organization from Ames.”

Altogether, REG employs 950 people, with 11 biodiesel and renewable diesel plants in the U.S. and Germany.

Expansion into renewable diesel

The company is expanding production at its renewable diesel plant in in Geismar, Louisiana, by nearly 278%. That plant will be able to produce 340 million gallons each year.

Wirth said Chevron needs both biodiesel and renewable diesel capacity. While biodiesel is often blended with petroleum-based diesel, renewable diesel also can replace the fossil fuel.

Warner said the marine and railroad markets prefer biodiesel as they works to reduce its carbon emissions.

“This is an emerging market where that sector is just starting to decarbonize,” she said.

The Chevron-REG deal, contingent on approval from regulators and from Chevron and REG shareholders, is expected to close in the second half of 2022.

Both companies’ boards of directors have approved the purchase.

“This transaction delivers premium cash value to shareholders and will give us additional resources as we aim to accelerate growth and strengthen our collective ability to deliver the sustainable fuels our customers and the world need,” Warner in a statement.

“Our employees’ hard work and dedication have built a fantastic renewable fuels company and made this transaction possible,” she said.

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Donnelle Eller covers agriculture, the environment and energy for the Register. Reach her at deller@registermedia.com or 515-284-8457. 

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