Clean Energy Fuels (CLNE 8.00%) has long held tremendous promise. The company is a leading player in renewable natural gas (RNG). That fuel has immense potential to help reduce emissions.
However, despite that promise, shares of Clean Energy Fuels have spent most of their time heading in reverse. They slumped 25% last year and have lost two-thirds of their value since the company went public in 2007. The company's constant need for capital to fund its growth is a big issue weighing on its share price.
That growth potential could make Clean Energy Fuels an attractive acquisition target for a larger energy company. Many industry leaders are looking for ways to accelerate their clean energy ambitions, which they could do by acquiring Clean Energy Fuels. Here's why it's an enticing acquisition candidate, as well as some potential suitors.
A leader in clean fuels
Clean Energy Fuels is an innovator. The company started as a natural gas refueling company, offering that fuel as a cleaner alternative to diesel. However, it has since begun to invest heavily in RNG made from capturing methane gas produced by manure at dairy farms. Capturing this methane and converting it into RNG is highly beneficial to the environment:
Data source: Clean Energy Fuels.
Clean Energy Fuels sells RNG to a growing list of customers that use it to fuel their fleets through its network of over 590 refueling stations across the U.S. and Canada. By using RNG, its customers can significantly reduce their carbon emissions.
The company is investing heavily in building out additional RNG infrastructure. It has partnered with leading energy companies Chevron, BP, and TotalEnergies to help fund new RNG production from dairy farms and other projects.
TotalEnergies agreed to invest up to $400 million in equity to fund RNG supply projects, becoming the company's largest shareholder. Meanwhile, BP has invested over $300 million and has a joint marketing agreement for RNG supply with Clean Energy. The company also recently secured up to $400 million in loan financing with private equity firm Stonepeak to help fund RNG infrastructure investments. These deals show the industry's interest in RNG and Clean Energy Fuels.
The RNG investment surge
RNG has become a growing focus of the energy industry in recent years because it can serve as a lower-carbon replacement for natural gas. Several energy companies have made RNG-related investments in recent years.
For example, Canadian energy infrastructure giant Enbridge spent $1.2 billion last year to buy seven operating U.S. landfill gas-to-RNG facilities. It also acquired a 10% stake in Divert for $80 million and will help fund its wasted-food-to-RNG projects. Kinder Morgan acquired several RNG companies in the past year to build a growth platform based around that fuel. Another notable deal was BP's acquisition of leading U.S. RNG producer Archaea Energy in 2022 for $4.1 billion.
Meanwhile, energy giants Chevron and ExxonMobil are investing heavily in growing their lower-carbon energy platforms. They're investing in organically building platforms across several lower-carbon technologies, including hydrogen, biofuels, RNG, and carbon capture.
They've both enhanced their growth by making acquisitions. Last year, Exxon paid nearly $5 billion to buy Denbury Resources to enhance its carbon capture capabilities. That followed Chevron's 2022 acquisition of Renewable Energy Group for more than $3 billion to bolster its biofuels business.
Any of these energy companies, along with top shareholder TotalEnergies, could be a suitor for Clean Energy Fuels if it put itself up for sale. While it doesn't need to sell itself, since it has several capital sources, a transaction could help lower the costs of producing RNG.
A deal with a strategic buyer could significantly enhance the combined company's scale while saving money on interest expenses. For example, Clean Energy's recent loan agreement with Stonepeak carries a 9.5% annual interest rate. Many large energy companies have top-tier credit ratings and cash-rich balance sheets, which would enable them to refinance Clean Energy's debt at much lower rates.
A potentially interesting acquisition target
Clean Energy Fuels has been a lackluster investment over the years, despite its compelling growth prospects. One of the factors holding it back is access to capital. It could remedy that problem by selling itself to a larger industry player, which could reduce costs, including its cost of capital.
However, while Clean Energy Fuels looks like a compelling acquisition target, that doesn't make it an intriguing stock to buy. It has a poor track record of creating shareholder value, which might not change if it remains independent.
