D1 Oils Plc
29 June 2007
29 June 2007
D1 Oils and BP to establish global Joint Venture to plant jatropha
D1 Oils plc, the UK-based global producer of biodiesel, plans to establish a
global Joint Venture with BP to create a world-leading business in Jatropha
curcas: D1-BP Fuel Crops Limited.
Jatropha is an oilseed tree that grows in tropical and sub-tropical regions and
produces high yields of inedible vegetable oil that can be used to produce
high-quality biodiesel. Jatropha can grow on a wide range of land types,
including non-arable, marginal and waste land. Jatropha does not compete with
food crops for good agricultural land or result in the destruction of
• Establishment of a 50:50 Joint Venture to undertake global planting of
• Target to plant one million hectares over four years
• Initial contribution of parties:
- D1 planting to date and planting business
- BP working capital of £31.75 million through equity in the
• Total Joint Venture funding requirement of approximately £80 million
over five years
• Plant science remains 100 per cent. owned by D1
• D1 to grant BP an option to subscribe for new shares representing 16
per cent. of its enlarged share capital at an average price of 251 pence
•Major global business to plant jatropha as sustainable biodiesel
• Endorsement by BP of D1's sustainable feedstock strategy
• Potential to produce low-cost, volume supplies of inedible oil for
• Use of marginal and waste land and land unsuitable for arable crops
• No competition with high biodiversity value rainforest
• Significant job creation and value to local communities
Under the terms of the Joint Venture Agreement signed today (subject to D1
shareholder approval), D1 and BP will work together exclusively on the
development of jatropha as a sustainable energy crop, including the planting of
trees, harvesting jatropha grain, oil extraction and transport and logistics.
Production of jatropha oil for refining into biodiesel is expected to begin in
D1 Oils Plant Science Limited, D1's plant science business, will act as the
exclusive supplier of selected, high yielding jatropha seeds and seedlings to
the Joint Venture. The strategy for the Joint Venture sees it planting Elite
seed in greater quantities than D1's stand alone plan.
With the conclusion of this transaction D1 will comprise, in its upstream
business, its wholly owned plant science operations together with the IP in
plant science, in addition to 50 per cent. of a global planting joint venture
with BP. In its downstream operations, the business will include, as it does
now, its wholly owned interests in refining and trading.
Commenting on the announcement, Lord Oxburgh of Liverpool, Chairman of D1 Oils
'Biodiesel is a young industry, but is rapidly becoming an established part of
the global renewable energy landscape. It is crucial that we develop supplies of
alternative, inedible vegetable oils like jatropha that are not subject to the
same demand pressures as food oils and that are grown on non-essential land.
This partnership with BP strengthens D1's strategy of delivering commercial
volumes of jatropha oil at competitive prices, whilst truly supporting the
communities in which we operate.'
Elliott Mannis, Chief Executive Officer of D1 Oils plc, said:
'This is a transforming event for D1. BP's decision to join us in this new
venture is a significant endorsement of our strategy to develop jatropha for the
production of sustainable biodiesel. It shows we have come a long way. BP's
proven logistical, managerial and financial support will enable a significant
enhancement and acceleration of the scope and pace of jatropha planting.'
Philip New, Head of BP Biofuels, said:
'As jatropha can be grown on land of lesser agricultural value with lower
irrigation requirements than many plants, it is an excellent biodiesel
feedstock. D1 Oils' progress in identifying the most productive varieties of
jatropha means that the joint venture will have access to seeds which can
substantially increase jatropha oil production per hectare.'
Graham Prince, Head of Corporate Communications +44 (0) 7973 323840
Brunswick +44 (0) 20 7404 5959
Kevin Byram / Mark Antelme
Interviews with Elliott Mannis and Philip New are now available in video / audio
and text at www.d1plc.com and at www.cantos.com
There will also be a conference call for analysts, hosted by Elliott Mannis,
today at 09.30am. Accompanying slides will be available on www.d1plc.com
Participant dial-in: +44 (0) 1452 541 076
A replay facility, including slides, will be available on www.d1plc.com
An audio-only replay facility will also be available on:
Dial-in: +44 (0) 1452 550 000
Pin: 5897646 #
D1 is being advised by Dresdner Kleinwort Limited
Dresdner Kleinwort Limited, which is authorised and regulated by the Financial
Services Authority, is acting for D1 Oils plc and for no-one else in connection
with the contents of this document and will not be responsible to anyone other
than D1 Oils plc for providing the protections afforded to customers of Dresdner
Kleinwort Limited, or for affording advice in relation to the contents of this
document or any matters referred to herein.
The Board of D1 Oils plc ('D1' or the 'Group') announces that it has, through
its subsidiary D1 Oils Trading Limited ('D1 Oils Trading'), signed a conditional
agreement in relation to a proposed 50/50 joint venture between BP International
Limited ('BP' or 'BP International') and D1 Oils Trading (the 'Joint Venture')
which includes the granting of the Option as described below.
The business of the Joint Venture will be the worldwide vehicle for planting of
jatropha curcas and the sale of jatropha oil. D1 will contribute its existing
planting footprint. The plant science, refining and trading operations of the
Group will not form part of the Joint Venture.
The Joint Venture will be set up by way of a company incorporated in England,
D1-BP Fuel Crops Limited ('D1-BP Fuel Crops'), in which D1 Oils Trading and BP
International will own equal shares. D1 Oils Trading and BP International will
each appoint equal numbers of directors to the board of D1-BP Fuel Crops. D1-BP
Fuel Crops will have a dedicated Managing Director and its own financial
The Joint Venture represents a key strategic step for D1. Approximately 1.9 per
cent. by book value of the Group's net assets will be transferred into D1-BP
Fuel Crops to implement the Joint Venture, by way of a UK asset transfer
agreement signed today and certain asset sale agreements to be entered into, in
local jurisdictions, after Shareholder approval (see below) has been obtained.
In consideration for the transfer by D1 of its existing planting and overseas
organisation into the Joint Venture and the granting to BP of the Option, BP has
undertaken to fund the first £31.75 million of the Joint Venture's working
capital requirements through an equity subscription. It is the intention that,
thereafter, both parties fund expenditure within the Joint Venture on a pro rata
basis. It is anticipated that the total funding requirement of the Joint Venture
over the next five years will amount to approximately £80 million.
BP will also contribute certain jatropha supply-chain know-how obtained to date
through its participation in a jatropha/biodiesel demonstration project with The
Energy Resources Institute (TERI) in India. In addition, BP will contribute
harvested grain and oil associated with the TERI project.
The D1 Board believes the valuation for its existing planting and overseas
organisation implied by the terms of the transaction compares favourably with
its own appraisal.
It is the intention of D1 and BP that the Joint Venture will plant one million
hectares of jatropha in its first four years. The parties have agreed in
principle that each party will have the right to offtake 50 per cent. of the
exported volume of crude jatropha oil on market terms.
D1's existing plant science and seed multiplication activities will be
transferred into a newly incorporated company, D1 Oils Plant Science Limited
(DOPSL). DOPSL will be wholly-owned by D1. The Joint Venture will enter into an
exclusive Seed Purchase and Service Agreement with DOPSL. As part of the Joint
Venture, mutual trademark licences will be granted by D1 and BP plc for the use
of their respective marks and logos in relation to the activities of the Joint
Coupled with the Joint Venture, the Company proposes to grant, subject to
Shareholders' approval, an Option to BP International to acquire up to
11,725,467 new Ordinary Shares in four tranches at prices from 210 pence to 300
pence (the 'Option'). The Option will be exercisable by BP at any time during
the option period (being the period commencing on implementation of the Joint
Venture and ending three years after such time) in whole or in part. Assuming BP
exercises the Option in full and no further shares in the Group were issued, BP
would hold 16 per cent. of the enlarged issued share capital of the Group. Upon
issue, the Option Shares will rank parri passu with all other Ordinary Shares of
the Group though be subject to certain restrictions under the Option Agreement
and it is intended that the Option Shares will be admitted to trading on AIM.
The weighted average strike price of the Option is 251.25p, a 54.1 per cent.
premium to the average D1 closing share price between 30 November 2006, the date
of announcement of D1's most recent placing and 14 June 2007, the day before
D1's announcement regarding its share price movement.
Shareholder approval is being sought for the entry into and implementation of
the Joint Venture and the granting of the Option; accordingly completion of the
Joint Venture including the grant of the Option is conditional upon the approval
of Shareholders at the EGM. The Joint Venture and the Option will not be
implemented unless such approval is obtained. The D1 Board is confident that
this represents a transaction in the best interests of Shareholders as a whole.
A circular will be sent to Shareholders in due course containing further
information about the Joint Venture and the Option and convening the EGM.
The purpose of this announcement is to provide you with further information on
the proposed Joint Venture and the Option.
Development of the D1 business to date
D1's organisation and strategy is centred around its three business activities
of agronomy, refining and trading.
In agronomy, D1 is a leader in the scientific and commercial development of
jatropha, and has achieved significant planting and offtake rights worldwide.
Together with its partners, D1 has a substantial jatropha planting footprint
across its three operational regions of India, Southern Africa and South East
Asia. As of 23 June 2007, D1, together with its partners, had planted or
obtained rights to offtake from a total of 172,241 hectares.
D1 has gathered a sufficiently wide range of jatropha material to support the
commercial breeding and product placement trials for the crop. D1 has collected
more than 200 accessions of jatropha from more than twenty countries across
three continents. Using field and laboratory data from this material, D1 has
established a breeding programme and global trials network to identify which
individual jatropha cultivars are best adapted to different cultivation zones.
The first commercial outcome of the plant science programme is the 'E1' elite
seed material, selected for higher yield and good biodiesel profile. D1 expects
this seed will deliver oil yields of 2.7 tonnes per hectare under properly
managed conditions when the trees attain maturity. D1 expects to plant out
50,000 hectares of its E1 elite seed in 2008.
In refining, D1 presently has 32,000 tonnes of capacity in beneficial operation
at its Teesside site, and has acquired a second refining and distribution site
at Bromborough on Merseyside, where the D1 Board expects to add a further
100,000 tonnes of capacity by the end of 2007. Work on the first phase of
operations to convert the existing facilities for production of biodiesel at
Bromborough is in line with expectations, and the Environment Agency has
confirmed that biodiesel processing can be undertaken at the site within the
existing permit. In addition, a fifth D1 20 refinery unit is being commissioned
at the Teesside site, and this will increase the Teesside production capacity to
In trading, D1 has begun the development of a global supply chain to support its
agronomy and refining operations. Having received the first volume shipments of
soya oil in the middle of 2006, the Company signed its first offtake deal with
Petroplus for supply of soya biodiesel in October last year.
A placing in December 2006 raised £49.2 million before expenses to fund, subject
to a number of key assumptions set out in a circular to Shareholders dated 30
November 2006, D1's business plan without further recourse to shareholders. The
main features of that business plan which related to the agronomy activities
• Planting at a rate of 150,000 hectares per year
• Development of the planting business model
• targeting a higher proportion of managed plantations and quality
planting joint ventures; and
• developing the logistics and supply chain
• Continued investment in jatropha plant science and plant breeding to
enable large-scale deployment of elite material, for better yields and oil
The directors believe that D1 has made good progress against each of these
objectives and, on a standalone basis, the directors would expect to meet them.
However, with the proposed Joint Venture, the directors believe that they can
accelerate progress in each of these areas and thereby add value to
shareholders. This is explained further below.
Transport energy policies across the globe are now increasingly driven by the
challenges of climate change, fuel security and sustainability. The D1 Board
believes biofuels, and in particular biodiesel, offer a means to secure
cost-effective supplies of sustainable transport fuel in the medium-term.
Biofuels are increasingly supported by national and regional policy initiatives.
By way of example, the Renewable Transport Fuel Obligation (RTFO) in the UK is a
requirement on transport fuel suppliers to ensure that, by 2010, 5 per cent. of
all road vehicle fuel is supplied from sustainable renewable sources. The RTFO
is being phased in progressively, with 2.5 per cent, 3.75 per cent and 5.0 per
cent. of all road vehicle fuel supplies in 2008, 2009 and 2010, respectively, to
be supplied from renewable sources. The UK RTFO is supported by an ongoing 20
pence per litre fuel duty derogation and from 15 April 2008, the introduction of
a 15 pence per litre penalty for non-compliance.
Meeting UK and European demand without recourse to imported feedstocks is
increasingly challenging. Despite the recent increase in diesel prices, high
food-grade feedstock costs have, for a number of months, significantly impacted
industry margins, and the D1 Board believes it prudent to plan for edible
vegetable oil prices remaining relatively high for the foreseeable future.
The table below shows the movements in the pricing of key edible feedstock
Feedstock vegetable oil at current prices* (US$ As at As at As at
June December June
2006 20061 2007
Rapeseed (RBD ex-tank UK) 919 944 960
Soya (RBD ex-tank Rotterdam) 705 795 898
Palm olein (FOB Malaysia) 417 608 770
1. Date of recent cash placing
Source: The Public Ledger
D1's strategy is to develop supplies of alternative, inedible oils that are not
subject to the same demand pressures as food oils, and which can be landed in
Europe at target prices that are very competitive even against the cheaper
food-grade alternatives. The feedstock crops must also add value to the
societies where they are grown, meaning that there must be socio-economic
benefits locally, and the crops should displace neither food crops nor precious
habitat such as rainforests. Faced with these challenges, D1 has selected
Jatropha curcas for large scale commercial development, and today's announcement
reflects BP's endorsement of this strategy.
Information on BP
BP operates globally with a workforce of nearly 100,000 employees, and 2006
revenues of US$ 270.6 billion, and has business activities and customers in more
than 100 countries across six continents. BP is organised into three different
• Exploration and production ('E&P')
• Gas, power and renewables
• Refining and marketing
BP's upstream activities include oil and natural gas exploration and production,
together with the management of crude oil and natural gas pipelines, processing
and export terminals. BP has active exploration activities in 26 countries.
BP Shipping operates an international fleet of crude oil tankers, product
tankers and LNG (liquefied natural gas) carriers, transporting energy products
Gas, power and renewables
BP's gas business manages its interests in the transport, regasification and
marketing of liquefied natural gas and the operation of processing plants. The
business consists of three business units structured regionally; America, Europe
and Asia. They focus on developing market access opportunities, negotiating and
securing contracts for BP's equity and third party LNG supplies, and BP's
participation in LNG re-gasification terminals.
Refining and marketing
BP's downstream operations refine, transport, sell and trade crude oil and
petroleum products in over 100 countries. They include refineries, petrol
stations, lubricants, business marketing and chemicals (aromatics and acetyls)
businesses. The BP group owns, wholly or in part, 19 refineries.
BP retails fuel, lubricants and, in many cases, everyday convenience items,
through more than 25,000 petrol stations worldwide.
In the commercial vehicle and general industrial markets, BP supplies lubricants
and lubricant-related services to the transportation industry and to automotive
BP accounts for approximately 15 per cent. of the European transportation diesel
market, and is also one of the largest blenders of biodiesel in Europe. In the
current year, BP expects to deliver approximately 700,000 tonnes of blended
FAME. This business segment also incorporates BP Biofuels, the business unit
which will be responsible within BP for the proposed Joint Venture. BP's
publicly announced initiatives relating to biofuels include:
• A US$9.4 million, 10 year jatropha/biodiesel demonstration project with
TERI in India. The project is expected to plant 8,000 hectares of jatropha,
and study technical, commercial and operational issues right down the supply
chain from cultivation to processing to end use.
• The establishment of the Energy Biotechnology Institute (EBI) at
University of California Berkeley, the University of Illinois and the
Lawrence Berkeley National Laboratory. This is a US$500 million programme to
study how bioscience can be applied to the production of new and cleaner
energy, principally fuels for road transport.
• A partnership with DuPont, announced in early June 2006, to develop,
produce and market the next generation of biofuels. The first initiative
announced on 26 June 2007, is a UK bioethanol facility, in partnership with
British Sugar, a subsidiary of Associated British Foods plc. The initiative
includes investment plans totalling around US$400 million, for the
construction of a world-scale bioethanol plant alongside a high technology
demonstration plant to advance development work on the next generation of
biofuels. The bioethanol plant, due to be commissioned in late 2009, will be
built on BP's existing chemicals site at Saltend, Hull and will have an
annual production capacity of some 420 million litres from non-food grade
• A 110,000 m3 per annum hydrogenation facility, using tallow as the
feedstock, at Bulwer Island, Australia.
Reasons for the Joint Venture and Strategy
BP plc has a market capitalisation of approximately £114.6 billion. The
combination of both financial and industrial strength make it a partner with
considerable credibility internationally to assist D1 in the next stages of its
corporate development. It is proposed that the Joint Venture will be established
between D1 and BP International, a subsidiary of BP plc. BP International, which
is based in the UK, is engaged internationally in oil, petrochemicals and
related financial activities. BP International also holds investments in
subsidiary and associated undertakings engaged in similar activities. For the
year ended 31 December 2005, BP International reported turnover of £31.4 billion
and profits after taxation of £911 million. As at 31 December 2005, BP
International had net assets of £3.8 billion.
The combination of BP's strong brand and reputation, its major presence in
downstream transportation fuel markets, its strong understanding of associated
technical and regulatory issues and demand drivers, its access to governments,
NGOs and other large organisations and its trading and logistics expertise, make
it an attractive partner for D1. It will also contribute to the development of a
world leading player in jatropha.
The Joint Venture business plan is a significant augmentation to the plan
outlined to our shareholders at the time of D1's most recent placing and the
Board believes it will deliver more value to D1 shareholders than the standalone
strategy. More specifically the D1 Board believes the proposed Joint Venture
will have a beneficial impact on:
• Plantation management and Crude Jatropha Oil ('CJO') production (the
business of the Joint Venture)
• Plant science and seedling production
• The wider D1 group
Plantation management and CJO production
As outlined above, D1 has established a leading position globally in the
commercialisation of jatropha as a biofuels crop. Jatropha is an oilseed tree
that grows in tropical and sub-tropical regions and produces high yields of
inedible vegetable oil that can be used to produce high-quality biodiesel.
Jatropha can grow on a wide range of land types, including non-arable, marginal
and waste land. It will not compete with food crops for good agricultural land
or result in the destruction of rainforest. D1 is on track to deliver on the
objectives for its Agronomy business as identified at the time of D1's most
recent placing in December 2006. The Joint Venture will adopt a business plan
which the D1 Board believes significantly exceeds D1's standalone plan in terms
of scale and quality and that the involvement of BP with its competencies and
resources will increase the likelihood of a successful implementation of the
plan. The key features of the Joint Venture business plan are:
• An accelerated planting programme. The Joint Venture business plan is to
target 1.0 million hectares of new commercial jatropha cultivation over the
next four years compared to approximately 600,000 hectares on a standalone
basis. In the first year of the Joint Venture the pace of planting is likely
to remain at the current 150,000 hectares per annum target. However, the
pace of planting is expected to increase thereafter up to a targeted rate of
at least 350,000 hectares per annum by the fourth year.
• A higher quality planting programme. D1 has to date focused on contract
farming and seed purchase agreements. These planting methods are less
capital intensive and better reflect D1's financial resources. The
arrangements have facilitated the roll-out of D1's vertically integrated
jatropha based strategy but are limited by: the use of lower yielding wild
seed; wide variations in land quality and agricultural techniques and the
substantial number of partners spread across a wide geography. The Joint
Venture's planting is intended to be much more strongly weighted towards
managed plantations where the Joint Venture owns and/or controls the land
and production, and towards local partners of significant scale and depth.
This is a more capital intensive approach than has been hitherto used by D1
to expand the business, but will result in more reliable oil flow to the
Joint Venture than some of D1's existing contract farming and seed supply
relationships. Forming the Joint Venture will facilitate this strategy,
partly because BP will help with the extra funding implied by the extra
capital intensity, and partly because BP's reputation and standing are
likely to help attract high quality partners.
• More rapid deployment of higher yielding jatropha varieties. All planting
to date has been undertaken using uncultivated 'wild seed' which D1 believes
will yield 1.7 tonnes per hectare from mature, well managed plantations. The
Joint Venture will focus on the deployment of elite E1 seeds, targeting
yields of 2.7 tonnes per hectare as rapidly as is practicable and at a
faster rate than under D1's standalone business plan. In due course
subsequent generations of proprietary seed with increased yields and / or
improved characteristics will be utilised. DOPSL, D1's new plant breeding
and seedling production company, remains outside the Joint Venture and will
be an exclusive provider of elite planting material and will produce more
elite seedlings than under the standalone plan. This is possible because the
planting programme will be both larger, and will comprise a higher
proportion of land where the commercial relationship is strong enough to
merit the deployment of elite seed. Furthermore, as discussed below, under
the terms of the proposed arrangement, the increase of DOPSL's production
capability will be fully paid for by the Joint Venture, even though DOPSL
itself remains a wholly-owned subsidiary of D1.
• Development of logistics strategy and a global supply chain. As well as
offering the opportunity for greater levels of planting and at higher
yields, the formation of the Joint Venture will assist with establishing a
full, vertically integrated supply chain taking harvested seeds through
crushing and pre-processing, and then delivering CJO both to domestic and
export customers. BP brings very considerable expertise in establishing and
managing operations and supply chains on a global basis and the D1 Board
believes that the Joint Venture will draw significant benefit from BP's
experience in this field.
• Use of BP network and brand. BP has a strong presence and reputation in
almost all of the countries where the Joint Venture will be operating. The
Joint Venture will capitalise on this in its dealings with government and
regulatory agencies, NGOs and current or potential partners. In addition to
lending its name to the Joint Venture, BP plc has provided a royalty-free
licence agreement allowing the Joint Venture to use the BP 'helios'
trademark on its communications materials.
• Enhanced funding for D1 and leverage for its shareholders. The capital
required by the Joint Venture is to increase the scope and pace of planting
activities, focus on the deployment of elite seed, finance a significant
increase in DOPSL's production capacity, and develop an optimal logistics
strategy. Of this BP will be responsible for funding the first £31.75m of
working capital. These monies are expected to be drawn down over the next
two years, thus providing a cash flow benefit to D1 relative to its
standalone plan. Beyond this, D1 and BP will be jointly responsible for
funding the Joint Venture on a basis pro rata to their shareholdings. The
Joint Venture is also able to raise further funds in the debt capital
markets. Currently, the D1 Board's funding plan has not contemplated debt
funding of agronomy beyond inventory finance.
Plant science and seedling production
D1's plant science and seedling production business will be transferred into
DOPSL, which will remain a wholly-owned subsidiary of D1. The formation of DOPSL
establishes D1's existing plant science and seedling production business as a
discrete stand-alone entity with its own dedicated team. This will enable DOPSL
to (i) maintain its focus on research and development, and (ii) provide the
framework by which it can increasingly contribute to the D1 group. DOPSL's
production costs will be fully funded by the Joint Venture. The Joint Venture
will benefit D1's plant science programme for the following reasons:
• Key intellectual property (IP) in plant science retained. Keeping plant
science within D1 will retain 100 per cent. ownership of the significant IP
which it has developed to date and which is expected to be generated in the
• Improved focus and greater transparency. DOPSL will be managed separately
from the plantation business, reflecting the different ownership structures
of the businesses. The D1 Board expects that the separation of the
management responsibilities for two businesses with quite distinct
operational characteristics will result in sharper focus and greater
transparency of value.
• De-risked, fully funded growth path. The Joint Venture will pay for all
of DOPSL's costs of production, including capacity expansion, when those
costs arise as DOPSL increases production to meet the Joint Venture's
growing planting requirement. The reimbursement of these costs, which will
incorporate a 13 per cent. mark-up, should enable DOPSL to avoid excess
unrealisable inventory, a key business risk typically associated with young
seed businesses investing in multi-year seed multiplication programmes. The
Joint Venture will also fund a range of technical support services provided
• Potential for a long-term, stable annuity income. The Joint Venture will
in addition pay DOPSL an annual performance fee for high yield performance
by the plants it supplies to the Joint Venture. This fee is US$50 for every
tonne of oil yielded in excess of a benchmark yield equivalent to 1.75 tonne
per hectare for mature trees, and will be reviewed every three years. By way
of illustration, if this arrangement were to apply to 200,000 hectares after
four years, and DOPSL's plants were to achieve yields of one tonne per
hectare per annum over the benchmark, then this should produce US$10 million
per annum over the mature life of those trees. Furthermore, DOPSL will
provide agronomy technical support to the Joint Venture, on a cost-plus
basis. This is expected to produce several hundred thousands of dollars of
additional income per annum.
• Flexible technology strategy. DOPSL's R&D programme will be wholly funded
by D1, which retains all IP. This will initially be focussed on jatropha
plant science for the benefit of D1-BP Fuel Crops, in order to earn the
annual performance payment described above. In addition, DOPSL is free to
investigate and to develop other technologies. Under the terms of the
arrangements, the Joint Venture has a right of first refusal to certain new
crops/technologies. BP is equally restricted from licensing jatropha-related
IP to competitors of the Joint Venture, and cannot itself compete with the
Joint Venture. Accordingly, the D1 Board anticipates there are likely to be
opportunities for DOPSL to develop new technologies in addition to jatropha
and to engage with BP's technology partners, for example through the Energy
Biosciences Institute ('EBI'). In this environment, D1 is confident that
DOPSL will identify opportunities to develop new business streams either
with its own resources or in conjunction with BP.
Benefits to the wider D1 group
The Board believes that the formation of the Joint Venture will also have
broader benefits to D1, in addition to those relating to the Agronomy
• Exercise of the rights within the terms of the Option agreement would
give a broader alignment of interests between BP and D1 Oils plc. The
weighted average strike price of the Option is 251.25p, a 54.1 per cent.
premium to the average D1 closing share price between 30 November 2006, the
date of announcement of D1's most recent placing and 14 June 2007, the day
before D1's announcement regarding its share price movement. The number of
option shares (combined with other shares which may be acquired by BP in the
market subject to compliance with a standstill, orderly marketing and other
applicable terms of the Option Agreement) will equate, subject to the terms
of the Option Agreement, to a maximum of 16 per cent. of the issued share
capital of D1 Oils plc post-exercise from time to time and full exercise of
the Option could result in the subscription of approximately a further £29.5
million to D1's cash resources. The D1 Board believes the Option offers the
prospect of significant breadth and depth to the alignment of interests, and
welcomes the fact that BP, following exercise of the Option, would have a
significant economic interest in the future success of D1. As part of the
Option, BP will be granted non-voting 'observer' rights on the board of D1
Oils plc to the extent it has exercised three tranches (12 per cent.) of the
option shares, subject to customary 'conflict of interest' provisions.
• A powerful ally in making the case for jatropha. D1's business model is
based on cultivating jatropha in a range of countries, and conversion of the
resulting CJO into biodiesel, both in those countries and via export to the
UK and the rest of Europe. In the context of the broader debate on biofuels,
this requires political and regulatory support, public enthusiasm for the
socio-economic and sustainability merits of the model, plus effective
integration with the technical requirements of downstream markets. The D1
Board believes that all this can be achieved without the Joint Venture, but
with the Joint Venture in place, and BP aligned to achieve the same
objectives, BP should be a powerful ally in, for example, government policy
consultation processes, industry technical standards committees, and
dealings with technical regulators.
• External validation of strategy. BP has been evaluating the potential of
jatropha as a non-edible fuel crop since February 2006 through its
relationship with TERI. D1 and BP have been in discussions regarding some
form of strategic cooperation since July 2006. During this time both parties
have conducted considerable mutual due diligence including field visits and
sustainability and contract reviews.
• Enhanced prospects for D1's refining business. While D1's refining
activities are not included in the scope of the proposed Joint Venture, D1's
refining business should benefit from any role BP plays in helping make the
general case for biodiesel from jatropha oil, and also from improved access
to BP as a potential customer of D1's refineries. It should be noted that
D1's planned rollout of UK refining capacity was always anticipated to be
comfortably below the projected volumes of CJO imports from the Agronomy
business, and this is still true with the formation of the proposed Joint
Venture. Overseas, the prospect of more CJO being produced in the various
countries is likely to create more local refining opportunities for D1 than
would have been the case without the Joint Venture. Finally, D1 is
developing process technology expertise relating to both the expelling and
pre-processing of Jatropha (necessary prior to its use as a
transesterification feedstock), which is within the scope of the Joint
Venture. Therefore the Joint Venture may become a customer for this
Other investment considerations
The D1 Board has reviewed the strategic and financial merits of alternative
strategies. Although the D1 Board strongly believes that the proposed
transaction is in the best interest of Shareholders, it would draw attention to
• Voting control. The proposed transaction is expected to result in a loss
of overall voting control over D1's planting activities. However, D1 retains
significant negative control. A large number of matters require unanimity of
Directors' or shareholders' votes, and this remains true in the event of
dilution of either party below 50 per cent.
• Sharing of reward and risks. D1 will now share the future benefits and
risks associated with the rollout of its planting programme, with BP through
the 50/50 Joint Venture and its preferential access to D1's plant science.
• BP's future strategy. BP's commitment to the development of a world
leading player in jatropha may change over time and there is consequently a
risk that the one million hectares planting target will not be met. The
joint venture agreement provides that either party may enact a termination
if the business is not attaining its growth targets.
• DOPSL's commercial flexibility. DOPSL's plant science business is
exclusive to D1-BP Fuel Crops. In light of this exclusive arrangement, DOPSL
is expected to have enhanced growth potential compared to D1's existing
strategy. This exclusivity restriction however only relates to jatropha and
any other crops adopted by D1-BP Fuel Crops.
• Business transition. There is potential for disruption during the
transfer of activities into the Joint Venture. Disruption may affect, inter
alia, pre-existing joint venture relationships, the creation of a new
management team and the integration of different cultures. The initial
organisation of the Joint Venture, however, will be essentially identical to
D1's current overseas organisation, with the same staff working with the
• BP's strategic influence. Whilst the Joint Venture agreement does not
contain change of control provisions, BP's Option and its involvement in the
exclusive agronomy Joint Venture may restrict the opportunities for a future
value realisation event involving D1. However, any potential strategic
investors in D1 may value BP as a future partner for many of the same
reasons as expressed in this document.
The Joint Venture with BP is a unique opportunity for D1 to partner with a major
global oil player. While under the terms of the Joint Venture agreement, D1 will
be sharing control of its planting activities, the Joint Venture will enable D1
shareholders to benefit from the acceleration of a larger and higher quality
planting programme. BP's involvement and support financially, managerially and
logistically should significantly increase the likelihood of the successful
implementation of the plan.
Although DOPSL will enter into an exclusive Seed Purchase and Service Agreement
with the Joint Venture, under the terms of this agreement, the Joint Venture has
agreed to fund DOPSL's production costs, significantly reducing the risk of this
business. DOPSL will also have the ability to take advantage of opportunities
for business development away from the Joint Venture.
The D1 Board believes the business plan for the Joint Venture should result in
enhanced financial returns with a higher degree of confidence in cash flows
versus the standalone position. Although D1 will now have a 50 per cent.
participation in the planting programme when compared with the current position,
the very significant acceleration of the rollout (from c.600,000 hectares to
1,000,000 hectares), the increase in its quality and the de-risking of the
commercial proposition offer Shareholders significantly enhanced prospects. The
directors believe that the terms of the proposed transaction and enhanced
prospects more than compensate for the reduction in strategic flexibility
implied in the decision to joint venture a significant part of its business with
a single partner and any potential dilution from the exercise of the Option.
Management and staffing of the Joint Venture
D1-BP Fuel Crops' board of directors from time to time will comprise six
directors, three (including the Managing Director) appointed by D1 and three
(including the Finance Director) appointed by BP.
The chair of D1-BP Fuel Crops' board (who will not have a casting vote) will
alternate annually, with the first chairman being one of the non-executive
directors appointed by D1.
The D1-BP Fuel Crops' directors appointed by a party will reduce from three to
two (one executive director and one non-executive director) for such period
during which that party owns or is beneficially interested in 30 per cent. or
less of the issued shares of D1-BP Fuel Crops.
The appointment of the Managing Director and Finance Director of D1-BP Fuel
Crops will be announced in due course. The following Non-Executive Directors
will be appointed to the Board of D1-BP Fuel Crops:
Elliott Mannis Non- executive Director (appointed by D1)
Barclay Forrest Non-executive Director (appointed by D1)
Philip New Non-executive Director (appointed by BP)
Paul Willems Non-executive Director (appointed by BP)
The Non-Executive Directors of D1-BP Fuel Crops will not receive any
remuneration or benefits in relation to their appointments.
The quorum of each D1-BP Fuel Crops board meeting is one director appointed by
D1 and one director appointed by BP. Decisions will be taken on the basis of a
simple majority of votes, subject to customary matters reserved to a
super-majority of the D1-BP Fuel Crops Board and/or the shareholders of D1-BP
Fuel Crops. In the event of a deadlock, resolution procedures will apply.
The Managing Director will have delegated powers specified by the D1-BP Fuel
Crops board, consistent with the requirements of the shareholders of D1-BP Fuel
Crops and the objectives of the Business.
In due course, regional and country staffing of D1-BP Fuel Crops will be
achieved by the transfer of existing D1 local management teams into D1-BP Fuel
BP's senior in-country management will also be made available free of charge to
develop the Business of D1-BP Fuel Crops, at a level which BP views as
Financial effect of the Joint Venture on D1
The development of a jointly agreed business plan and financial model has been
an integral part of the discussions between D1 and BP. The D1 Board has analysed
this financial model and its impact on the projected financial position of the
D1 group overall. The D1 Board has formed the following views:
• Based on the present value of future cash flows, implementation of the
joint venture will be value accretive on a per share basis, compared with
the implementation of a standalone strategy (irrespective of whether or not
the Option is exercised).
• Projections of the net cash position suggest the working capital position
in each quarter of the four year plan will be enhanced, as a result of,
amongst other things, the receipt of the planting credit, again irrespective
of whether the Option is exercised.
Accordingly, the D1 Board believes that the Group should be able to fund the
delivery of the strategy described above without further recourse to the
proceeds of the Option or Shareholders subject to the following key assumptions:
• Key commodity price and exchange rates not moving materially outside
reasonable historic norms for extended periods of time where such movements
would decrease the cash flows of the Company;
• The Company deploying its planned refining capacity within a reasonable
period of that currently targeted;
• The progressive introduction of the RTFO from April 2008 provides a
pricing environment for biodiesel in the UK at least in-line with the D1
Board's prudent economic assumptions;
• Bank funding for the D1 Group is available on reasonable market terms and
in the amounts assumed by the Board; and
• No material adverse changes to the regulatory and fiscal environments for
biofuels that are relevant to the Company's strategy.
In addition to the key issues as set out above, your attention is drawn to the
risk factors set out in the Company's admission document dated 21 October 2004
and subsequent placing documents dated 31 May 2005 and 30 November 2006.
In developing the jointly-agreed business plan and financial model for the Joint
Venture, the D1 Board and BP have mutually reviewed and challenged various
commercial assumptions and reflected actual data now obtained from the planting
programme and supply chain projects. Key assumptions for the Joint Venture
• Higher supply chain costs versus the position at the time of D1's most
recent placing. For example, on a seed purchase model the D1 Board now
expects costs to be approximately US$75 per tonne higher. These are the main
driver of a higher estimate for the landed cost of jatropha assuming a 29
per cent oil content of US$575-625 per tonne. This is assumed to decrease
over time as volumes increase permitting the Joint Venture to more
efficiently utilise its supply chain.
• A four year planting target of one million hectares as described above.
The mix of planting should move towards contract farming with stronger
partners using elite seed and see some increase in the proportion of managed
plantations. Overall the Joint Venture is targeting 50 per cent. ownership
of its gross planted hectares with partners accounting for the balance.
• Yields from wild seed are anticipated to be 1.7 tonnes per hectare from
mature, well-managed plantations. Yields from elite seed are anticipated to
reach 2.7 tonnes per hectare on the same basis.
Accounting for the Joint Venture
The Joint Venture will be accounted for in accordance with IAS31 (Joint Venture
Accounting) and SIC13 (Jointly Controlled Entities - Non-monetary contribution
by venturers) and will be consolidated on an equity accounting basis within D1's
As a result of this accounting treatment the D1 Board expects the Group to
recognise a gross gain within its consolidated profit and loss account of
£15.875 million. This gain will be reduced to reflect the value of the Option
and transaction costs associated with the formation of the Joint Venture.
As at 23 June 2007, D1 had planted or obtained rights to offtake over
approximately 172,000 hectares as summarised in the table below:
Hectares Managed Contract Seed purchase and oil supply Total
plantations farming agreements
India - 31,877 24,924 56,801
Africa 3,638 20,760 16,646 41,044
South East - 41,420 32,976 74,396
Total 3,638 94,057 74,546 172,241
D1's effective economic interest in the above planting after taking into account
the interests of its partners is approximately 50 per cent.
Commissioning work continues on the fifth D1 20 refinery unit that was recently
deployed at Forty Foot Road. This D1 20 unit was installed in June 2007.
At the time of its recent Annual General Meeting on 23 May 2007, the D1 Board
stated that the business was progressing positively. The D1 Board remains of
this view and believes that the Group is well placed to realise its goals.
Gross cash as at 31 May 2007 was £30.3 million.
This information is provided by RNS
The company news service from the London Stock Exchange