BP invests $90 million in Verenium

By Kris Bevill | August 04, 2008
Web exclusive posted August 7, 2008 at 4:26 p.m. CST

When Kelly Lindenboom, Verenium Corp.'s vice president of corporate communications, told Biomass Magazine earlier this year that 2008 would be a "transformational year" for the company, could she have imagined that a few months later the company would be involved in a monumental partnering of cellulosic production and petroleum giant?

After a year of conversations, BP and Verenium Corp. announced Aug. 6 that they have entered into a strategic partnership to accelerate the development and commercialization of cellulosic ethanol. As part of the joint venture, BP will invest $90 million in Verenium over the next 18 months in exchange for rights to current and future technology held within the partnership, as well as production facilities and agronomics expertise.

To put BP's investment into perspective - Verenium's 1.4 MMgy cellulosic ethanol facility in Jennings, La., cost $60 million.

During a conference call, Verenium President and Chief Executive Officer Carlos Riva said that he is "extremely pleased" with the collaboration, adding that the pairing of Verenium and BP represents a "best-in-class" of advanced biofuel resources. He said both companies are equally focused on developing commercial-scale ethanol and the partnership serves as an important step in the right direction.

"We believe energy crops like sugar cane, miscanthus and energy cane are the best feedstocks to deliver economic, sustainable and scalable biofuels to the world," said Sue Ellerbusch, president of BP Biofuels North America. "This deal puts us at the front of the cellulosic biofuels game."

The opening of Verenium's pilot-scale facility in Jennings played a major role in BP's decision to partner with the company. Ellerbusch said Verenium's proven technology and expertise made it an attractive potential partner to BP. "Not all biofuels are created equal," she said, adding that Verenium's "aggressive vision for the future" combined with its proven technology in Jennings and goal to produce a sustainable fuel from energy crops made the company a perfect fit for BP.

Upon closing the deal early on the morning of August 6, Verenium received an initial $24.5 million payment from BP. An additional $20.5 million will be paid to Verenium in three installments over the next year. BP will also pay Verenium $2.5 million monthly for 18 months to co-fund Verenium's cellulosic ethanol initiatives.

In order to carry out the initial phase of the partnership, the two companies have formed a special purpose entity, equally owned by BP and Verenium, which will serve as a licensing vehicle for the partnership's intellectual properties. Riva stressed that BP's investment in Verenium doesn't represent a purchase of equity and that the two companies have entered into a jointly agreed partnership.

Verenium has been publicly seeking a business partner for more than a year. "After numerous meaningful dialogues with major industry players currently engaged in the biofuels industry, it became clear to us that BP was the partner that most closely shared our vision," said John McCarthy, Verenium's executive vice president and chief financial officer.

Both BP and Verenium said they expect to negotiate a second phase of the partnership that will focus on the development of commercial-scale production facilities. Riva acknowledged that Verenium's business plan still includes beginning construction of its first commercial-scale production facility in 2009 and confirmed the plant's location will most likely be in the American Southeast.

Verenium's Jennings, La., facility is currently completing the start-up phase and should enter into the process optimization phase later this year, according to Lindenboom. The facility has been, and plans to continue, using locally-obtained sugarcane and energy cane bagasses as feedstock. In late July, Verenium received part of a $40 million U.S. DOE grant that it plans to use to further developments at its Jennings facility.