BP’s Archaea Reversal

On its Q2 2026 earnings call, recently appointed BP Chief Executive Officer (CEO) and former CEO of Woodside Energy, Meg O’Neill, announced five priorities to “deliver a step change in performance and to grow shareholder value.” Those priorities include strengthening the balance sheet, simplifying and focusing the business, investing with discipline and capital efficiency, running assets safely, reliably, and more cost-efficiently, and tackling culture to enable faster, more effective decision-making and greater accountability for results.

Part of the portfolio simplification includes selling Archaea Energy (Archaea), which anchors its renewable natural gas (RNG) business. “Some assets may have been important to BP in the past,” said O’Neill on the Q2 2026 earnings call. “That does not necessarily mean they are the right assets for BP’s future. We are in action. We plan to market our US renewable natural gas [RNG] business, Archaea Energy, and we recently launched a process to market our North Sea business.”

When discussing BP’s financial performance, BP Chief Financial Officer Katherine Thomson noted that BP has delivered US$3.5 billion in structural cost reductions but was disappointed that underlying operating expenditures are not coming down quickly enough.

“The actions taken so far have not been sufficient to overcome inflation, some acquired costs, and the complexity of our cost base,” said Thomson on the Q2 2026 earnings call. “We have identified further opportunities to optimize supply chain costs to simplify organizational structure and use technology to build a more competitive BP. In parallel, the portfolio review Meg described has identified businesses where divestment can simplify BP, improve margins, and strengthen cash flow quality. Gelsenkirchen is a clear example, an asset with a higher cost intensity than the group average. Divestment also reflects our assessment of strategic fit through cycle earnings and integration value. Our announcement to market Archaea Energy is another example. Importantly, cost reduction is an output of these portfolio decisions and not the reason for them.”

In the quarter, BP incurred post-tax net impairments of around US$800 million, which it said were primarily related to its energy transition businesses in the Gas and Low Carbon Energy segment. However, the segment delivered a US$800 million increase in operating profit thanks to higher price realizations and price lags.

A US$4.1 Billion Bet On RNG

To understand how big a reversal the planned Archaea sale represents, let’s recount how BP got here in the first place.

Archaea went public on the New York Stock Exchange in September 2021 through a special purpose acquisition company (SPAC) merger of Rice Acquisition Corp., Aria Energy LLC, and Archaea Energy LLC. At the time, the company was one of the fastest-growing names in RNG, converting methane from landfills and dairy digesters into pipeline-quality gas. By late December 2021, gas was flowing from the Keystone and Alliance landfills into Archaea’s Assai facility in Scranton, Pennsylvania. Assai was the largest landfill gas-to-RNG facility in the world. Archaea’s SWACO facility in Grove City, Ohio was also one of the world’s largest RNG facilities. Archaea signed its first long-term utility contract that November and, in January 2022, announced a 20-year, 7.6 million MMBtu RNG supply agreement with FortisBC.

What set Archaea apart from other RNG developers was the attention to detail for each project and the pace of its buildout. In 2022, Energy Transition Insider sat down with Megan Light, then Archaea’s vice president of investor and community relations. Light described a standardized, modularized plant design the company called Archaea V1. “We are utilizing our extensive gas processing and RNG expertise to build and optimize projects that are expected to have higher uptime and methane recovery than industry averages, and we expect our standardized approach to project development to result in lower capital costs and faster build times than industry averages,” said Light.

While other RNG developers were customizing each RNG project, Archaea had figured out a repeatable design to compress costs and trim time from conception to bringing digesters online. Archaea also stood out for how deliberately it managed offtake risk. Rather than leaning on volatile environmental credit markets, the company built its commercial strategy around locking in demand. “Our differentiated commercial strategy is focused on selling a targeted 70% of our expected RNG production volumes under long-term, fixed-price contracts with creditworthy counterparties,” said Light. “This enables us to lock in expected double-digit returns in a downside case, looking only at contracted volumes. We take a ‘highest and best use’ approach to remaining production volumes, which today are sold into the transportation market where they can generate renewable identification number [RIN] and/or low-carbon fuel standard [LCFS] credits.”

Archaea kept expanding through the first half of 2022. In April, it paid US$215 million in cash for NextGen Power, picking up 14 operating landfill gas-to-electric plants and plans to develop RNG facilities on 11 additional INGENCO sites. The following month, it detailed a US$1.1 billion joint venture (JV) with Republic Services called Lightning Renewables. The JV covered 39 RNG projects across 19 states and was expected to eventually generate more than 12.5 million MMBtu a year, with construction running from late 2022 through 2027. By mid-2022, Archaea had 88 projects in its backlog with signed gas rights agreements and was targeting annual adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of roughly US$600 million once that backlog was built out. Light said the company aimed to bring 10 to 20 new projects online annually, estimating it would take six to eight years to complete the existing backlog.

Archaea’s rapid growth and industry leadership piqued BP’s interest. On October 19, 2022, BP agreed to acquire Archaea for a total enterprise value of US$4.1 billion, including about US$800 million of net debt.

“BP is a world-class partner and a strong fit for Archaea, with a strategic focus on bioenergy and an operational history in the RNG value chain that is fully aligned with ours,” said Nick Stork, Archaea’s CEO at the time.

“Combining Archaea’s RNG assets and development backlog with BP’s bioenergy business and resources is the best way to create a stronger platform,” said Daniel Rice, Archaea’s board chair at the time.

BP framed the deal as central to its energy transition strategy. The company identified bioenergy as one of five key transition growth engines and pledged to direct more than 40% of annual capital expenditures (capex) toward energy transition businesses by 2025, rising to 50% by 2030. The acquisition closed on December 28, 2022. “We see enormous opportunity to grow our bioenergy business by bringing Archaea fully into BP,” said Dave Lawler, then chairman and president of BP America. “The talent, expertise, and passion of their team have let them achieve incredible growth so far, and we’re excited to support the next chapter in line with our strategy.”

Less than four years later, BP is undoing that chapter. In February 2025, BP reversed course and guided for just US$1.5 billion to US$2 billion in annual energy transition capex, roughly US$5 billion below its initial guidance. Based on its 2025 annual report, BP’s capex for the year was US$14.53 billion, meaning energy transition only received 10% to 14% of total capex, and low carbon was even lower at just 5%.

A Cyclical Downturn In RNG

BP’s decision was based more on economics than a jab at clean energy. The pricing model that made RNG development so attractive in 2021 and 2022 has shifted considerably. A significant share of project revenue depends on environmental credit markets. D3 renewable identification number (RIN) credits under the federal Renewable Fuel Standard are generated when RNG is sold into the transportation fuel market. D3 RIN prices averaged around US$3.25 in 2022. At the time of this writing, D3 RINs are US$2.44. In addition to the lower prices, there’s uncertainty about future federal volume targets for RNG to support government funding. The cherry on top is rising construction costs and project delays.

RNG project economics run on a layered credit stack. The stack includes federal-level RIN credits, a state-level Low Carbon Fuel Standard (LCFS) credit priced off each project’s carbon intensity (CI) score, and the value of the underlying physical gas itself, with the newer 45Z production tax credit now stacking on top of that. The CI score tends to be the most volatile swing factor in the group, particularly for dairy-manure-based RNG, where an ultra-low or negative CI score can push LCFS credit value many multiples higher than a landfill gas project would earn on the same volume. Archaea had a mostly landfill gas portfolio anchored by Assai and SWACO rather than dairy projects. Meaning that captured less of the outsized LCFS upside available to the lowest-CI projects, leaving Archaea’s economics more dependent on RIN pricing and the fixed-price volumes it has under contract to carry the business through a softer credit market.

Federal tax policy hasn’t fully offset the pressure either. Under 2025 tax legislation, the Section 45Z Clean Fuel Production Credit was extended by two years, through the end of 2029. However, guidance on how to calculate avoided emissions for manure-derived RNG remained unresolved as of mid-2026, leaving much of the credit effectively unusable for producers who need it most.

BP is shifting toward capital-light businesses to boost cash flow, improve its balance sheet, and drive shareholder value. The buyer, sale price, and timing of BP’s Archaea Energy sale remain unknown. But given market dynamics, it’s clear that BP believes renewables are more a part of its past than its future.

“Reorganizing into upstream and downstream is an important first step on this journey,” said O’Neill on the Q2 2026 earnings call. “Portfolio optimization is central to building a simpler, stronger and higher value BP.”

The Latest Domino To Fall

The Archaea sale follows a pattern BP set in motion with a US$20 billion divestment program announced in February 2025 by then-CEO Murray Auchincloss. As part of that program, BP agreed to sell its US onshore wind business, BP Wind Energy, to LS Power’s Clearlight Energy platform. That business comprised 10 operating onshore wind assets across seven states and roughly 1.3GW of net generating capacity, serving more than 15 power offtakers. The sale officially closed on December 9, 2025. “We have concluded we are no longer the best owners to take it forward,” said William Lin, BP’s then-executive vice president for Gas & Low Carbon Energy, describing the deal as part of BP’s effort to “rationalize and optimize our portfolio to generate value.”

The company that spent the early 2020s assembling a low-carbon growth platform through billion-dollar acquisitions is now, just a few years later, dismantling much of that same platform in the name of simplicity, capital discipline, and shareholder value.

BP is not the only major oil company retreating from the low-carbon bets it made a few years ago. ExxonMobil cut its own 2025-2030 low-carbon investment guidance from US$30 billion to US$20 billion in late 2025, after pausing a roughly US$7 billion hydrogen project in Baytown, Texas, and citing weak customer demand and cost pressure. The company has since leaned more heavily toward carbon capture tied to its existing oil, natural gas, and liquefied natural gas operations rather than newer low-carbon businesses. BP is trimming billions of dollars from earlier renewable-investment plans while pushing oil production higher toward the end of the decade. Across the industry, most of the largest oil and gas producers have pulled back on renewable investment and softened net-zero commitments even as a handful of holdouts maintain aggressive climate targets.

Layering renewable energy on top of continued oil and gas expansion does not solve the climate problem. Sustained investment in new fossil fuel production and infrastructure tends to lock in decades of high-carbon output, regardless of how much renewable capacity gets built alongside it.

The good news is that the underlying RNG opportunity that drew BP to Archaea in the first place has not disappeared. Industry estimates suggest roughly 90% of the US landfill-gas-to-RNG potential remains undeveloped, and consolidation among the sector’s remaining independent developers continues. BP’s exit may say more about which kind of company should own capital-intensive infrastructure businesses than about the future of the RNG industry. Building on the foundation Archaea set in motion takes a company committed to the energy transition for the long haul, not one simply trying to capitalize on a cyclical uptrend.