Why The Shale-Fracking Rice Brothers Are Betting Their SPAC On Zero-Carbon Landfill Gas

The brothers who sold Rice Energy to EQT for $8.2 billion have now decided to make renewable gas from landfills their family’s biggest investment.

The SPAC called Rice Acquisition Corp. announced a deal yesterday to acquire Aria Energy for $680 million and Archaea Energy for $347 million and combine the two into a new company that would become the nation’s biggest producer of zero-carbon renewable natural gas captured from landfills. 

Capturing this gas — which would otherwise have just wafted up out of our trash piles and into the atmosphere — is one of the most cost effective and scalable ways to reduce both carbon emissions and the carbon footprint of our fuels. 

Once the deal closes later this year, the Rice SPAC (NYSE: RICE) will be renamed Archaea Energy, and be helmed by Nick Stork. They’ll start off producing about 5 million mmBtus of landfill gas per year from nearly a dozen projects, with 20 more in the works, and an eye toward tripling output within three years. Their biggest development is in Dunmore, Pennsylvania at the Keystone landfill, which receives garbage from New York and New Jersey. At 50 million tons in place it’s one of the nation’s biggest and getting bigger, and will produce gas for the next 30 years. 

Archaea was launched in 2018 by the Rice Investment Group and the wealthy Saltonstalls family of Boston. They were impressed with the passion of Stork, who bought his first landfill in 2016, added more, and started a waste hauling business from scratch. “I was initially concerned about the environmental risk,” says Stork, who after acquiring a few more landfills became a leading practioner of waste mangement science. “Every square inch is highly engineered and permitted,” from water monitoring to gas collection. “It became clear to me that this was really a renewable energy facility in disguise.” 

The Rice SPAC was sponsored by the family investment office of the Rice family. Dan Rice III, 69, was a portfolio manager at BlackRock

BLK
overseeing $2.5 billion when he founded Rice Energy in 2007, just as the boom in drilling the Marcellus shale was getting hot. He handed the company to his sons Derek, Daniel IV, and Toby, who took Rice Energy public and built it into a fracking giant, eventually selling for $8.2 billion in 2017 to Pittsburgh-based EQT

EQT
. The deal made EQT, formerly Equitable Gas, the single biggest natural gas producer in the entire country at 4 billion cubic feet per day. The Rices got about $400 million of EQT stock in the deal, and enough sway to wage a proxy fight that installed Toby Rice, 39, as CEO in July 2019. The stock is up 25% since then. The Rices, having sold, now own less than 1% of shares outstanding. 

Danny Rice, 40, says that Rice Investment Group will roll its stake in the old Archaea into a roughly 40% ownership of the new Archaea, which will become their biggest family investment. It’s no irony that the family is moving from fossil gas to renewable gas, he says. It’s just a continuation of their success so far in cutting America’s emissions: “From 2008 to 2018 the most impactful reduction of CO2 emissions because of what we did in the Marcellus with natural gas displacing coal.” 

In searching for green energy investments, “we looked at turning soybean oil and beef fat into renewable diesel,” says Rice. They settled on landfill gas because of the scale and the duration of investment. “This is better than anything else we could do on alternative fuels.” Sure it’s more expensive than regular natural gas, but they get paid a lot more for it, with 20 year contracts in place at $15 per mmBtu, versus about $3 for regular natgas today. 

Besides, Rice sees similarity between leasing shale fields versus tapping landfills. “Like the oil and gas model, we put up the capital and take his compliance problem and replace it with a predicable royalty stream. Then he can market his landfill as a renewable energy facility.” 

The Archaea team includes a scientist from Air Liquide who continues to perfect his own gas membrane technology the allows them to separate out carbon dioxide from the landfill stream. And they will be adding skillful RNG operators from Aria Energy, which was backed by Ares Management

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As for growth opportunities, they intend to arbitrage the price differential between renewable natural gas and so-called “green hydrogen” which they will be able to manufacture on site by running landfill gas through a steam reformation process to make hydrogen. They are also in the early stages of research on how to drill deep wells beneath landfills where they could inject and sequester the pure stream of CO2 that they separate out.

Nationwide, gas captured from landfills supplies less than 2% of the national total of 90 billion cubic feet per day, but considerably more than the once outlandish but increasingly popular practice of capturing methane from the manure of dairy cows and swine. They figure that by capturing the emissions from the third of America’s 2,500 landfills that don’t have controls, they could reduce emissions by as much as if 75% of the automotive fleet went to electric vehicles. Big if true. 

The federal government is eager to recognize and reward such benefits. Particularly exciting is the “45-Q” federal tax credit which pays $35 per ton or more in cash per ton of otherwise fugitive carbon dioxide sequestered. With Archea modeling the capture of some 300,000 tons of CO2 (equivalent) per year, they could collect some $10 million in federal cash subsidies — good for an extra 10% of revenues on an already profitable business.  

Expect more traditional fossil fuel companies to follow their lead into renewables. “A lot of folks with a traditional energy background have skillsets very valuable to clean energy,” says Rice. “They’ve delivered energy independence as a country, and can help us get to carbon neutrality.”

Source: https://www.forbes.com/sites/christopherhelman/2021/04/08/why-the-shale-fracking-rice-brothers-are-betting-their-spac-on-zero-carbon-landfill-gas/