BP to make major job cuts, sell assets as energy prices fall: lignocellulosic business goes on the block

December 8, 2014 |

bp-logo-200Butamax, KRL, Vivergo, sugarcane ethanol business not impacted by cuts; consolidation to Brazil; San Diego research center, Highland feedstock operation also up for sale.

In the UK, news broke from BP headquarters that the company has determined to divest the cellulosic biofuels business amidst an overall corporate retrenchment, in the face of falling energy prices, that will result in more than “hundreds of jobs” lost in the UK, US and across the whole of BP’s global operation.

Most of the cuts are expected to hit administrative and financial back office groups, but assets are being put on the block as well — in addition to more than $40 billion in assets sold as part of the payment for the 2010 Deepwater Horizon oil spill.

The cuts followed on from a similar series of job cuts at companies such as Shell and Chevron, and have taken on a particular urgency at BP after shares rose last week amidst rumors of a Shell takeover.

“[A Shell takeover has] been a rumor for many years,” said a well-placed BP observer. “It may be that they’re doing another round of shedding assets to buy back stock and build up the price to thwart the take-over.”

The word on the impact for BP Biofuels

Lignocellulosic ethanol program. “BP informed staff of a shift in focus in its global biofuels business,” the company told The Digest. “We are seeking to divest the cellulosic biofuels business.”

BP acquired a 50% stake in Tropical BioEnergia S.A.,Ê a joint venture established by Brazilian companies SantelisaÊ Vale and Maeda Group, which has constructed a 435 millionÊ liter (115 million gallon) a year ethanol refinery in EdŽia,Ê Goias State, Brazil. The joint venture also intends to progressÊ plans to build a second ethanol refinery, investing a total ofÊ approximately R$1.66 billion (US$1 billion) in the two refineries

BP acquired a 50% stake in Tropical BioEnergia S.A.,Š
a joint venture established by Brazilian companies Santelisa
Vale and Maeda Group, which had constructed a 435 million
liter (115 million gallon) a year ethanol refinery in
Goias State, Brazil.

“The current challenging external business environment is resulting in tough strategic choices having to be made by businesses across BP.  In Biofuels, the decision has been taken to cease further development of BP’s proprietary lignocellulosic technology. While we believe there is value in the LC technology, we have chosen to focus our biofuels investment on building the profitability and scale of our sugarcane biofuels business in Brazil.

This decision will affect lignocellulosic activities including a demonstration plant in Jennings, Louisiana, the technology center in San Diego, the Highlands feedstock farm in Florida as well as some activities in Brazil and centrally. We will now explore options to sell these assets and facilities. We are committed to supporting our staff through this process and informing them of their individual positions as soon as we are able.

“It’s very typical of BP to do this at the end of the year,” said a Digest source, ” especially when oil drops as much as it has and is in the $60 range.  They look to cut costs at the end of the year and the consolidation to Brazil is not a surprise, either.

Digest sources also speculated that there have been reports circulating since “more than a year ago” that there have been “issues with the scale up of the technology,” and with “Abengoa, DSM, and INEOS making progress”, BP could “pay to license technology” if needed. But that is at odds with the official word from BP, so let’s consider that unproven speculation at this point.

No impact for Vivergo, Butamax and KRL

BP Biofuel pump“This decision does not affect our Vivergo bioethanol joint venture in the UK or our bio-butanol joint ventures Butamax and Kingston Research Limited. The Butamax joint venture is progressing with its existing strategy to commercialize biobutanol.

The DSM Sugar to diesel program

At the same time, BP confirmed that it had also previously made a determination to discontinue a sugar-to-renewable diesel program that had been underway since 2008.

BP commented: “Since 2008 BP has been working with partners in the development of renewable diesel options. This work initially began between BP and Martek Biosciences Corporation under a joint development agreement and in September 2012  a new JDA was entered into between DSM Bio-based Products and BP. The current JDA will expire at the end of 2014 and, following a strategic review, BP has decided not to extend the JDA and stop collaboration with DSM in Sugar-to-Diesel by 31 December 2014.”

“This has been a difficult decision,” the company added. “However, it is increasingly clear that there are fundamental cost challenges to develop a sugar-based biodiesel fuel that is able to compete with vegetable oil derived bio-diesels or sugar-based ethanol (in gasoline).

“Significant price support through regulation would be needed to help sugar-based biodiesel overcome these cost challenges and BP believes such regulation would not be sustainable in today’s markets.  Therefore, this lack of regulatory and policy support for sugar-based biodiesel has led to BP’s decision of not continuing with the project.”

Brazilian sugarcane ethanol program

Though BP declined to comment specifically on sugarcane ethanol operations in Brazil except in relation to the cellulosic business, our understanding is that, aside from consolidating operations into Brazil and “as well as some activities in Brazil and centrally”, there’s no impact in the existing sugarcane ethanol business.

Potential suitors for BP’s technology

The suitors for a large-scale cellulosic ethanol technology that’s relatively far along in development would be several in number. Existing major players would, naturally, be possibilities to “take a peek” to see if the technology or feedstock resources offer process improvement or business acceleration opportunities. Among these: Raizen, Abengoa, POET-DSM, DuPont, Beta Renewables, Inbicon, Clariant and GranBio might all be interested in some of the assets that will be divested.

Players that have not previously demonstrated an interest in cellulosic biofuels may be inspired to take a look. Potential players might include Green Plains, COFCO, Total, CHS, Petrobras, Indian Oil Co, Bajaj Hindustan, Reliance Industries, Eni, Sinopec, FHR or Valero.


The Bottom Line

Tough times for BP — not surprising that, in light of takeover rumors and falling energy margins, that asset-shedding and cost-cutting are the order of the day. We’ll be following the sale process closely — there are a large number of potential suitors that may reduce quickly to a handful of companies prepared to carry the technology “over the line”.

It’s encouraging, on the other hand, that Butamax is going forward — a possible sign that the technology is, indeed, coming closer in terms of “going to market”, though doubtless a disappointment to Gevo that an end to the Gevo-Butamax IP tussle is not at hand.

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