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Renewable Energy Group

Renewable Energy Group (former ticker: REGI) was a leading North American producer of cleaner fuels, specializing in biodiesel and renewable diesel. Before its acquisition by oil giant Chevron Corporation in 2022, REG was a titan in the bio-based diesel industry. The company's core business was wonderfully simple in concept yet complex in execution: it sourced low-cost, waste-based raw materials—like used cooking oil, inedible corn oil, and animal fats—and transformed them into high-quality, lower-carbon fuels. This process not only helped reduce waste but also provided a cleaner alternative to traditional petroleum diesel, positioning REG at the forefront of the energy transition. For investors, REG represented a pure-play bet on the growth of renewable fuels, offering a story of environmental benefit married to industrial-scale production. It was a company that turned what others threw away into a valuable, in-demand commodity.

The Business Model: Turning Waste into Fuel

At its heart, REG operated like a highly specialized refiner. Instead of crude oil, its primary input was a diverse slate of fats and oils, known in the industry as feedstock. The company's competitive edge stemmed from its ability to process a wide variety of these feedstocks, allowing it to pivot to whichever input was cheapest at any given time. This flexibility was crucial for protecting its profit margin. REG produced two main products:

The profitability of this business was largely determined by the difference between the cost of feedstock and the selling price of the finished fuel, a dynamic often called the “crush spread” in commodity markets.

A Value Investor's Perspective

For a value investor, analyzing REG meant looking past the “green” hype and focusing on the underlying business fundamentals, competitive advantages, and, most importantly, the risks.

The Bull Case: Riding the Green Wave

The investment thesis for REG was compelling and built on several key pillars:

The Bear Case: Navigating the Risks

A prudent investor also had to weigh the significant risks inherent in REG's business model:

The Chevron Acquisition: An End-Game Story

The story of REG as a standalone public company concluded in June 2022, when Chevron Corporation completed its acquisition of the company for $3.15 billion. This event serves as a fantastic case study for investors. The buyout represented a logical end-game. For Chevron, acquiring REG was a fast and efficient way to become a major player in the renewable fuels space, advancing its own ESG (Environmental, Social, and Governance) targets and diversifying its energy portfolio. For REG shareholders, the acquisition was a validation of the company's value, providing a profitable exit at a significant premium. It demonstrated that a well-run, strategically important niche company can become an irresistible target for an industry giant seeking to adapt to a changing world, ultimately unlocking the value that long-term investors had been waiting for.