Venture to make fuel of fat, vegetable oil

Tyson Foods, refiner to join to build plant

June 26, 2007|By Bloomberg News

Tyson Foods Inc., the biggest U.S. meat processor, and Syntroleum Corp. formed a joint venture to produce fuel from animal fat and vegetable oil in response to growing demand for energy from renewable sources.

The venture's first project will be a $150 million plant that can produce 75 million gallons a year of synthetic fuel for the diesel, jet and military markets, the companies said in a statement. The plant, at a yet-to-be-chosen site, is expected to be operational in 2010, providing annual operating profit of $35 million to $60 million a year.

Tyson Chief Executive Officer Richard L. Bond announced in April a plan with ConocoPhillips to jointly develop diesel fuel from about half the 2.3 billion pounds of animal fat Tyson produces a year. That venture would boost yearly earnings by 4 cents to 16 cents a share once full production of about 175 million gallons starts in 2009, Tyson said at the time.

The Syntroleum agreement "is the next step for Tyson," said Stephens Inc. analyst Farha Aslam in an interview. "It will give Tyson greater flexibility and they can build the plant close to the feed stocks that would otherwise be difficult to transport to a ConocoPhillips facility." She rates Tyson shares "equal-weight."

Shares of Springdale, Ark.-based Tyson Foods closed even at $23.07 on the New York Stock Exchange. The shares have risen 54 percent in the past year. Shares of Tulsa, Okla.-based Syntroleum rose 20 cents, or 7.3 percent, to close at $2.96 on the Nasdaq.

U.S. biodiesel production has been boosted by a tax incentive for refiners that took effect in January 2005. Tyson and ConocoPhillips lobbied the White House to expand the tax breaks to include them, over objections of the National Biodiesel Board, which represents small producers.

This month, the House Ways and Means Committee approved an extension of the tax incentive that would prevent large oil companies from claiming the diesel tax credit by blending small amounts of biodiesel with conventional fuels. An attempt to strip the incentive for the largest oil companies has stalled in the Senate.

There are 148 biodiesel plants in the U.S. with a capacity to produce 1.4 billion gallons a year, according to a June 7 survey by the Jefferson City, Mo.-based board. Biodiesel production in 2006 was about 250 million gallons, the board said.

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