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BP Plans $350M Tropical Expansion

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BP Biofuels, a unit of British oil giant BP Plc (BP - Free Report) has proposed to increase the production of its Tropical ethanol project in Brazil by two times at a cost of about $350 million.

The expansion at the site in Edeia, announced by BP in 2011 when it took the full ownership of the Tropical project, comprises development of 35,000 hectares (86,487 acres) of plantations as well as building a new mill having a capability of crushing 2.5 million tons of sugarcane annually into sugar and ethanol. The new project is likely to generate direct and indirect employment for about 7,650 personnel.

The processing capacity at the facility is expected to reach 5 million tons of sugarcane annually, yielding 450 million litres of ethanol equivalent per year from its current output of 2.5 million tons, with the mill working at full capacity by the end of 2014 or early 2015.

With the expansion, BP will export around 340 gigawatt per hour (GWh) of electric energy to the Brazilian national grid. The Agro-Ecological Zoning of Sugarcane in Brazil has approved the agricultural area for sugarcane cultivation.

In 2011, BP acquired three mills, including the Tropical plant, in the states of Goias and Minas Gerais. The company has since spent 400 million reais ($192 million) for the growth of plantations as well as efficiency enhancement at the projects.

Brazil has been a leader in the production of cane-derived ethanol. The Latin American country is the world’s largest exporter of the biofuel, expected to transport some 2.5 billion liters in 2012.

BP, which recently closed a $5.5 billion cash deal with Houston’s Plains Exploration & Production Company relating to the divestment of various oil and gas fields in the deepwater US Gulf of Mexico, holds a Zacks #3 Rank (short-term Hold rating). Longer term, we maintain our Neutral recommendation.

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