BP to Acquire Full Control of Biofuels Joint Venture for $1.4B

BP plc BP has announced its agreement to acquire Bunge's 50% stake in their joint venture, BP Bunge Bioenergia S.A., solidifying BP's control over one of Brazil's top biofuel-producing companies. This strategic acquisition, valued at approximately $1.4 billion, marks a pivotal step in BP's efforts to expand and optimize its bioenergy portfolio.

Strengthening Biofuels Operations

The acquisition will allow BP to fully integrate BP Bunge Bioenergia into its operations, leveraging its trading and technology capabilities to maximize value. The deal is expected to lead to the consolidation of 100% of the JV's financial results, including debt of around $0.5 billion and lease obligations of approximately $0.7 billion.

Once the transaction is completed, BP will have the capacity to produce around 50,000 barrels of ethanol equivalent per day from sugarcane, utilizing BP Bunge Bioenergia's 11 agro-industrial units spread across five Brazilian states. This integrated business model spans the entire production chain, from cultivation to selling ethanol and sugar.

Emma Delaney, BP's executive vice president for customers and products, conveyed her excitement about BP Bunge Bioenergia's industry leadership and opportunity to enhance value through its trading and technology capabilities.

Refocusing Biofuels Development

Alongside this acquisition, BP is reassessing its approach to new biofuel projects. The company is pausing two potential developments in sustainable aviation fuel (SAF) and renewable diesel while continuing to evaluate three other projects. This strategic shift aligns with BP's goal to simplify its portfolio and focus on high-value, high-return initiatives.

Delaney elaborated on this strategy, emphasizing that its focus on developing new biofuel projects has been motivated by maximizing value. These adjustments are aimed at achieving anticipated growth and returns from biofuels in a streamlined and targeted manner.

Financial and Operational Impact

This acquisition meets BP's expected returns threshold for bioenergy, aiming for more than a 15% return and fitting within its disciplined financial framework. BP plans to allocate around $16 billion in capital expenditures for both 2024 and 2025. This move supports BP's strategic bioenergy growth targets, contributing to approximately $2 billion in EBITDA from bioenergy by 2025.

Future Growth Prospects

BP's full ownership of BP Bunge Bioenergia opens up new growth opportunities in the region, including potential advancements in next-generation ethanol, sustainable aviation fuel, and biogas. The company remains committed to expanding its bioenergy business, with ambitious goals to increase biofuels production and biogas supply significantly by 2030.

Pending regulatory approvals, the transaction is expected to close by the end of 2024. This acquisition and the refocused biofuels strategy are set to enhance BP's position in the bioenergy sector, driving sustainable growth and shareholder returns.

Zacks Rank & Key Picks

BP currently carries a Zack Rank #3 (Hold).

Investors interested in the energy sector may look at some better-ranked stocks like Archrock Inc. AROC, Sunoco LP SUN, and SM Energy Company SM. While Archrock and Sunoco sport a Zacks Rank #1 (Strong Buy) each, SM Energy currently carries a Zacks Rank #2 (Buy).

Archrock is an energy infrastructure company based in the United States, focusing on midstream natural gas compression. It provides natural gas contract compression services and generates stable fee-based revenues.

The Zacks Consensus Estimate for AROC's 2024 EPS is pegged at $1.07. The company has a Zacks Style Score of A for Growth. It has witnessed upward earnings estimate revisions for 2024 and 2025 in the past 60 days.

Sunoco is a leading wholesale motor fuel distributor in the United States, boasting a vast distribution network spanning 40 states. With long-term contracts servicing over 10,000 convenience stores, it distributes over 10 fuel brands, ensuring a stable revenue stream. SUN currently has a Value Score of A.

The Zacks Consensus Estimate for 2024 and 2025 earnings per unit is pegged at $7.29 and $7.17, respectively. The partnership has witnessed upward earnings estimate revisions for 2024 and 2025 in the past 30 days.

SM Energy is set to expand its oil-centered operations in the coming years, with an increasing focus on crude oil, especially in the Permian Basin and Eagle Ford regions. The company's attractive oil and gas investments should create long-term value for shareholders.

The Zacks Consensus Estimate for SM's 2024 EPS is pegged at $6.63. The company has a Zacks Style Score of B for Value. It has witnessed upward earnings estimate revisions for 2024 in the past 30 days.

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