D1 and BP form biofuels joint venture

By Kerstin Neuber

LONDON (Reuters) - Biofuel producer D1 Oils (DOO.L) announced on Friday a joint venture with BP (BP.L) that will see D1 nearly double its schedule for planting oilseed trees, lifting its share price 10 percent.

Under the deal, BP also has an option to buy new D1 shares, representing about a sixth of the enlarged company, at an average price of 251 pence.

"This is a major uplift in the scale of our planting target overall," D1 Oils Chief Executive Elliott Mannis told reporters.

Firms like BP and other large petroleum companies are keen to secure a supply of biofuel to meet government regulations that 5 percent of automotive fuel must be made up of biofuels by 2010.

But biofuels are becoming controversial because they have put up food prices as farmers swap from producing food crops to biofuels that are often subsidised. Palm, soybean and rapeseed oils are increasingly used for biofuels.

The joint venture will aim to plant one million hectares of jatropha trees, which produce vegetable oil, over the next four years compared to around 600,000 hectares D1 had been targeting.

D1 said it hopes to raise production to 2.7 tonnes of oil per hectare from 1.7 tonnes when trees mature after five or six years. "And we will increase yield even further over time," Mannis said.

Evolution Securities analysts said in a note the D1 plantations should produce around 3 billion litres of crude jatropha oil per year when mature which equalled 25 million barrels. They plan to raise forecasts as "D1 has now moved decisively to become an upstream producer".