(Bloomberg) -- Chevron Corp.’s $3.1 billion purchase of Renewable Energy Group Inc. is a statement of the oil giant’s intent to accelerate its energy transition strategy, according to Chief Executive Officer Mike Wirth. 

REG’s biodiesel production facilities, combined with Chevron’s existing joint venture with Bunge Ltd. and its marketing reach, especially on the West Coast, will create a biofuel “system” that will transform Chevron into one of North America’s largest producers of renewable fuels, he said in an interview. 

“This builds a leading position in the renewable fuels value chain as part of our commitment to lead in the energy transition,” Wirth said. “We’re serious about committing to a lower carbon future and we’re on a different path than many others are.”

America’s oil giants have come under pressure to transform their businesses towards low-carbon energies like never before over the past 18 months. Rival Exxon Mobil Corp. lost a quarter of its board last year after activist investor Engine No. 1 gained the support of major shareholders in demanding the company change its fossil fuel-focused strategy. Since then, both Exxon and Chevron have announced ambitions to eliminate emissions from their own operations and dedicate more capital spending to businesses that will further the energy transition. 

Wirth said Chevron had been in talks with REG for some time on how to partner in the renewable-fuel space before deciding on an outright buyout. In the four months before Bloomberg News reported that a deal may be coming, REG’s stock had dropped by nearly half.  

REG, based in Ames, Iowa, is North America’s largest biodiesel producer by volume and also makes renewable diesel. The fuels are seen as critical in decarbonizing heavy-duty transportation that can’t be electrified as easily as passenger vehicles, such as airplanes.

Chevron expects the acquisition to be accretive to earnings per share in the first year after closing and will generate about $550 million of earnings by 2025, including cost-savings from merging operations. The deal will meet Chevron’s target of double-digit returns over time, Wirth said. REG’s CEO Cynthia “CJ” Warner will join Chevron’s board of directors. 

Chevron plans to spend $10 billion on low-carbon investments through 2028, and about $1.5 billion of the REG purchase will count toward that goal, Wirth said. More deals may be coming. 

“It will be a combination of organic and inorganic investments over time,” he said. “Some will be large scale, others will be medium or small size. “We’re serious about making progress on our low-carbon agenda.”

Shares of Chevron climbed 1.7% as of 12:25 p.m. in New York trading, while REG stock surged 40%.

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