Tyson Foods Turning Fat Into Fuel
Last updated Monday, April 16, 2007 8:24 PM CDT in Business
By Kim Souza
The Morning News
Meat giant Tyson Foods Inc. and energy giant ConocoPhillips announced Monday a venture that will produce roughly 175 million gallons of biodiesel a year -- enough to run Tyson Foods' truck fleet for 3.5 years.
Last year U.S. biodiesel makers produced between 225 million to 250 million gallons, or slightly less than 6 million barrels of the fuel, according to the National Biodiesel Board.
This new venture is large in terms of what it will add in volume because the 175 million gallons will almost double the number of biodiesel-produced barrels domestically by adding another 4.37 million barrels each year. However, the 175 million gallons represents only 3 percent of the total diesel produced annually by ConocoPhillips, said Jim Mulva, chairman and ConocoPhillips CEO.
"From the Texas Panhandle pasture to the Amarillo processing plant and on to the Borger, Texas, refinery together we are replicating what it takes Mother Nature two billion years to produce," said Jeff Webster, director of Tyson Foods Renewable Energy Division.
Webster said the new product is unlike any other in the market. Traditional petroleum blends such as ethanol or blended biodiesel require mixing. He said the new product is a chemical and molecular identical match to 100 percent diesel.
The Springdale-based food giant and Houston-based ConocoPhillips -- which on Monday was placed at No. 5 on the Fortune 500 list of largest U.S. companies -- at one time would have been unlikely business partners.
The "win-win" partnership is a sign of the times amid $64 per-barrel oil and a federal mandate to create record levels of renewable fuels, said Tyson Foods President and CEO Dick Bond.
Bond said when he entered the food business more than 30 years ago he never dreamed of such a partnership.
"This strategic alliance is a big win for the entire agricultural sector because it paves the way for greater participation of fats and oils in renewable fuels," Bond said.
Bond has been on record encouraging state and federal policymakers to consider the effect of diverting corn-for-food into corn-for-fuel. Near record corn prices have been brought on by increased ethanol production, with Bond warning of higher global food prices as a result.
Together the partners plan to begin production by the end of the year and estimate full production by the spring of 2009.
Capital expenditures by ConocoPhillips will run $100 million in next three to five years. Bond said Tyson Foods would spend far less -- almost nothing this fiscal year -- which will end in September.
Bond said part of the beauty of the venture is that the infrastructure is in place. On the processing end, Bond said the company will need to make sure the tallow -- rendered beef or pork fat -- is up to the level of cleanliness and purity required by the refinery.
The company will use slightly more than 50 percent of the company's fat byproduct in the venture, Bond said. While the company hopes to eventually use fat from chicken, beef and pork, the initial phase will focus on beef tallow because of its proximity to the refineries located in the Midwest. Bond said it is likely that all 10 of its domestic beef processing plants will be involved in the venture.
Analysts predict this new tallow market will boost the bottom line for Tyson Foods by an estimated 4 cents to 16 cents per share at full production.
The company now sells much of its animal fat in edible tallow markets at about 23 cents per pound, said Prudential Equity analyst John McMillin. Selling the tallow for fuel production can boost that margin by roughly 5 cents per pound, he said.
The company said it has access to roughly 2.3 billion pounds of animal fat annually. With 50 percent of that earning an additional 5 cents per pound, the company could add an extra $57.5 million to the company coffers once up and running.
"We believe this is a good deal for Tyson because it creates a value-added product from what was previously a by-product with a lesser value," said Stephens Inc. analyst Farha Aslam. (Stephens Inc. conducts investment banking services for Tyson Foods and is compensated accordingly.)
Shares of Tyson Foods (NYSE: TSN) closed Monday at $20.90, up 45 cents and setting a new 52-week high.
Tyson Foods will report second quarter earnings April 30.
Fast Facts
Biodiesel Basics
* Supplements additional domestic petroleum supplies.
* The raw materials come from within the United States.
* Renewable diesel is an enviro-friendly product offering lower carbon emissions and contains no sulfur, which can reduce acid rain.
* No major changes are required in the industry's infrastructure. Renewable diesel can be used in today's vehicles and refineries.
* No negative impact to consumers. Biodiesel pump prices and mileage performance are competitive.
Source: ConocoPhillips
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Carl wrote on Apr 17, 2007 7:54 AM: