July 10, 2007

Tyson Foods to partner with ConocoPhillips for animal fat-sourced biodiesel

Meat processing giant Tyson Foods is teaming up with oil mogul ConocoPhillips to recycle greasy animal fat waste into biodiesel fuel.

Tyson has made agreements with ConocoPhillips and Syntroleum, a small company that develops synthetic fuel technology to process millions of gallons of animal grease each year.

One third of all animal fat comes as a result of the production at Tyson's slaughterhouses and biodiesel production can benefit from beef, chicken or pork.

Analyst Timothy Ramey, D.A. Davidson & Co., says the biggest benefit of the biodiesel deals for Tyson will be their impact on the market price of the fatty by-products, known as tallow.

Also, there is no way to produce more tallow efficiently since it is a by-product of the meat industry. Converting animal fat into biodiesel can take place in existing refineries using the same chemical processes employed to refine crude oil. Ramey said animal fat for biodiesel has more advantage other renewable fuels like ethanol as it doesn't require large capital outlays.

He added he doesn't expect the bump in tallow prices will affect Tyson's earnings in the current fiscal year. Tyson expects its joint venture with ConocoPhillips to begin production in late 2007 and hit its stride by 2009.

Tyson said once the venture becomes fully operational, earnings will boost by 4 to 16 cents per share annually, depending on tallow and energy prices.

Its partnership with Syntroleum will have to split the costs of a US$150 million synthetic fuel plant over the next 2½  years. The plant is expected to begin operations in 2010 and according to Tyson, the team-up is seen to generate US$35 million and US$60 million in operating profits. However, the company admits it doesn't have specific earnings-per-share projections

Tyson also aims to become an animal-fat broker. In addition to the ventures with ConocoPhillips and Syntroleum, Tyson will use its pull in the meat industry to collect fat drippings from other livestock processors and funnel tallow to its biofuel projects.