Please ensure Javascript is enabled for purposes of website accessibility

Here's Why Clean Energy Fuels Corp. Stock is Up 17% Today

By Jason Hall - Mar 1, 2017 at 2:47PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A big deal with a very big partner may fundamentally change the game for Clean Energy Fuels.

What happened

Shares in Clean Energy Fuels Corp. (CLNE 2.01%), 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 (RSG 1.66%) landfills to oil giant BP plc (ADR) (BP -0.25%), 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.

Clean Energy "Redeem" logo on the side of a transit bus

Image source: Clean Energy Fuels Corp.

So what

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."

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.

Now what

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Clean Energy Fuels Corp. Stock Quote
Clean Energy Fuels Corp.
$4.57 (2.01%) $0.09
BP p.l.c. Stock Quote
BP p.l.c.
$28.28 (-0.25%) $0.07
Republic Services, Inc. Stock Quote
Republic Services, Inc.
$133.04 (1.66%) $2.17

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/03/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.