BP in $680m Brazilian bioethanol deal

BP is to pay $680m to acquire majority control of a Brazilian bioethanol and sugar producer in the latest move by the UK oil group to expand in emerging markets.

The company has spent the past few months reshaping its portfolio as it tries to recover from last year’s Gulf of Mexico accident and has already signed strategic partnerships in Russia and India. The Brazilian deal is the largest to date for its alternative energy business. BP expects alternative energy to be the fastest growing energy sector over the next 20 years, with global biofuels production projected to more than triple.

“This strategic acquisition underlines BP’s commitment to building material businesses in growing economies and continued expansion in Brazil through exploration and production, as well as biofuels investments”, said Bob Dudley, BP chief executive, in a statement.

Under the terms of the agreement, BP will pay about $680m to acquire 83 per cent of the shares of Companhia Nacional de Acucar e Alcool (CNAA) and refinance 100 per cent of the company’s existing long-term debt.

After the acquisition, which is subject to regulatory approval and agreed closing conditions, BP will become the operator of two producing ethanol mills, located in Goiás and Minas Gerais states. A third CNAA mill is currently under development in Minas Gerais state. The acquisition is expected to increase BP’s overall Brazilian production capacity to about 1.4bn litres of ethanol equivalent per year from the current 435m litre level.

The total planned combined crushing capacity of all three mills, when fully developed, is expected to be 15m tonnes of sugar cane per year. At full capacity, each mill will have a production capacity of about 480m litres of ethanol equivalent per year. Each mill will also have the capacity to supply roughly 340GWh of electricity per year to the grid.

BP already has a presence in Brazil’s bioethanol market where it has held a 50 per cent share in Tropical BioEnergia since 2008. The company operates an ethanol mill in Goiás state with a production capacity of 435m litres of ethanol per year. The ownership and operation of this mill is not impacted by this acquisition.

Since 2006, BP has announced investments of more than $1.5bn in biofuels research, development and operations, and has announced investments in production facilities in Europe, Brazil and the US.