Brazilian state-run energy giant Petroleo Brasileiro S.A. (PBR), or Petrobras S.A., has teamed up with Rapid City, South Dakota-based ethanol producer KL Energy Corporation (“KLE”) to optimize the latter’s proprietary technology. Petrobras’ U.S. subsidiary, Petrobras America Inc, has signed a Joint Development Agreement in this regard.
The deal calls for the companies to work together on KLE’s patented cellulosic ethanol process technology – that uses wood, grasses, or the non-edible parts of plants as feedstock and can be optimized for multiple feedstocks – for sugarcane bagasse (the fibrous leftovers created following the extraction of sugarcane juice). Under the agreement, Petrobras will invest $11 million to adapt KLE’s Upton, Wyoming demonstration facility to use the waste and other materials, validate the optimized process, and finally license the validated technology.
Ultimately, Petrobras and KLE plan to take the process developed at the Wyoming plant to a larger scale by deploying the technology at a Petrobras-owned sugar mill in Brazil that is slated to come online in 2013.
The transaction is part of Petrobras’ initiative to invest $2.4 billion in biofuels by 2013, with a target of churning out 3.9 billion liters of ethanol by that time. Brazil’s largest company hopes cellulosic ethanol technology will enhance its ethanol production by 40% without increasing the number of sugarcane acres.
Petrobras has already established its presence in the Brazilian ethanol market. Cane-derived ethanol biofuel has become big business in the Latin American country since the arrival of flex-fuel cars in 2003 that can run only on ethanol or gasoline or a mixture of both. Most of the new cars sold in Brazil have the flex technology.
Headquartered in Rio de Janeiro, Petrobras is the largest integrated energy firm in Brazil and one of the largest in Latin America . The company’s activities include: the exploration, exploitation and production of oil from reservoir wells, shale and other rocks, and in the refining, processing, trade and transport of oil and oil products, natural gas and other fluid hydrocarbons, in addition to other energy-related activities.
We have a Zacks Rank of #3 (short-term Hold recommendation) on Petrobras ADRs. We also reiterate our long-term Neutral rating.
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