* BP to fund $10 million for initial phase
* Deal latest tie-up of an energy giant, biofuel maker
* Martek yet to find microbe for sugar conversion
(Updates with stock move, industry background, additional deal
details, analyst comment, byline)
By Ernest Scheyder
NEW YORK, Aug 11 Oil giant BP Plc (BP.L) and
Martek Biosciences Corp MATK.O are forming a partnership to
study the use of algae to convert sugar into biodiesel, the
companies said on Tuesday.
The deal is the latest in a series of research agreements
between multinational energy companies and start-up alternative
fuel makers as the industry looks for ways to diversify its
If successfully commercialized, the BP-Martek tie-up will
let both companies use algae to turn biomass refuse, such as
sugar cane and wood chips, into biodiesel that can be used to
power vehicles or further refined into cosmetic or
The challenge for Martek is to find algae or related
microbes that will convert biomass into fuel. The company does
not currently have a microbe strain that performs that
"It's going to take a lot of work to get the right
organism," Steve Dubin, Martek's chief executive, told
Converting biomass to fuel is an expensive venture, and
finding the right microbe could potentially help lower costs.
London-based BP will initially contribute $10 million to
the project, and Columbia, Maryland-based Martek will conduct
the research and development.
"As an alternative to conventional vegetable oils, we
believe sugar-to-diesel technology has the potential to deliver
economic, sustainable and scalable biodiesel supplies," Philip
New, the chief executive of BP Biofuels, said in a statement.
Each company will retain intellectual property rights owned
before the partnership. BP will own the rights to any research
conducted during the partnership, though Martek will have an
exclusive license to commercialize the research.
While the deal is promising, DA Davidson & Co analyst
Timothy Ramey said it resembles a "man on Mars" proposition
simply because Martek does not yet have the technology to
convert biomass to biofuel.
"Is this a new business? The answer is no," said Ramey, who
rates Martek's stock "underperform."
Patents and supply contracts for many of Martek's products
expire in 2011, so the company need to find new sources of
revenue, he said.
Because Martek isn't putting up any cash, the deal with BP
"sounds like a no-lose," Ramey said.
The partnership follows several other recent agreements
between energy giants and biofuel operators.
Exxon Mobil (XOM.N) inked a $600 million partnership with
Synthetic Genomics last month to develop transportation fuel
Dow Chemical and Algenol Biofuels said last June they would
study ways to use algae to turn carbon dioxide into ethanol.
DuPont (DD.N) already has several biofuels agreements with
BP, as well as other energy companies.
In morning trading shares of BP fell 29 cents to $50.91
while shares of Martek rose 36 cents to $24.21.
(Reporting by Ernest Scheyder, editing by Gerald E. McCormick
and John Wallace)