March 11, 2011 / 3:42 PM / 8 years ago

BP expands in Brazilian biofuels with $680 million buy

SAO PAULO/LONDON (Reuters) - Oil major BP has agreed to buy a Brazilian sugar and ethanol group for $680 million, expanding its presence in the country’s biofuels industry in what it said was the largest deal to date for its alternative energy unit.

A worker cuts sugar cane for raw sugar and ethanol fuel production on the property of the Sao Martinho mill in Pradopolis, about 300 km (186 miles) northwest of Sao Paulo in this July 6, 2007 file photo. REUTERS/Rickey Rogers/Files

The deal accents big oil’s diversification into Brazil’s ethanol sector as economies rethink their dependence on fossil fuels, especially following the political unrest in the Middle East that has driven oil prices to the highest since 2008.

BP, which has spent recent months reshaping its portfolio as it looks to put the Gulf of Mexico oil spill behind it, said on Friday it would have an 83 percent stake in cane milling group Companhia Nacional de Acucar e Alcool (CNAA).

It will refinance 100 percent of CNAA’s long-term debts, which were included in the $680 million but not disclosed.

“Brazil is without any doubt a main focus for BP investments,” Mario Lindenhayn, CEO of Brazil’s BP Biofuels unit, told reporters citing the country’s economic growth and global relevance in biofuels.

The largest deal ever done by BP Alternative Energy is expected to more than triple the company’s production capacity in Brazil to around 1.4 billion liters of ethanol/year, up from 435 million liters currently.

The remaining 17-percent share in CNAA belongs to French commodities group Louis Dreyfus.

“We have the ambition to be a relevant player in Brazil in the next 10 years therefore we are open for new opportunities,” Lindenhayn said. “We are open and flexible for any kind of business.”

The investment is the latest in a series made by oil majors in Brazil’s cane sector as ethanol is seen as an alternative to gasoline and expected to be adopted as a fuel additive in several countries for economic, political and environmental reasons.

BP was the first oil giant to get into the sector, which has seen a wave of mergers and acquisitions since the worsening of the 2008 global credit crisis hit mills that had been highly leveraged to fund ambitious expansion plans.

The company entered the sector in 2008, when it took a 50-percent stake in Tropical Bioenergia SA, a joint venture with two local groups that runs a mill in Goias state. One of the groups was later bought by Louis Dreyfus, which currently holds a 25-percent share in Tropical.

BP shares were down 1.7 percent at 468.7 pence at 2:40 p.m EST.

It had said in November it was focusing its biofuel efforts on Brazilian sugar cane and U.S. energy grasses, holding off from making investments in the rest of the world for the time being.

FOCUS ON BRAZIL

CNAA is controlled by the Sugarcane and Alcohol Investment and Participation Fund, made up of investment funds from Carlyle/Riverstone, Goldman Sachs and Discovery Capital, Global Foods and DiMaio Ahmad, according to the company’s website.

The company has two units in operation, in the states of Minas Gerais and Goias, producing sugar, ethanol as well as electric energy through the burning of cane bagasse. A third plant is being built in Minas Gerais.

Total cane crushing will reach 15 million tonnes once all three units are operating at full capacity. Each one will be producing 480 million liters of ethanol equivalent and able to sell about 340 gigawatts per hour of energy to the grid.

BP projects that global biofuels output will more than triple to around 6.5 million barrels a day by 2030, with alternative energy expected to be the fastest growing energy sector over the next 20 years.

Editing by Reese Ewing and Lisa Shumaker

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