ConocoPhillips and food processor Tyson partner for biofuels

ConocoPhillips (NYSE: COP) and Tyson Foods (NYSE: TSN) have announced a strategic alliance to produce and market biodiesel—and apparently take advantage of an unintended tax loophole, according to a report.

In a press conference today, Tyson, the largest U.S. meat processor, and ConocoPhillips, the third-largest U.S. oil company, said they would process beef, pork and chicken fat from Tyson rendering plants at ConocoPhillips refineries.

Over the last year, the companies said they have been collaborating on ways to leverage Tyson’s advanced knowledge in protein chemistry and production with ConocoPhillips’ processing and marketing expertise to introduce a renewable diesel to the United States.

Tyson is to make capital improvements this summer in order to begin pre-processing animal fat from some of its North American rendering facilities later in the year. ConocoPhillips also will begin the necessary capital expenditures to enable it to produce the fuel.

The finished product is to be renewable diesel that meets all federal standards for ultra-low-sulfur diesel. Production is expected to ramp up over time to as much as 175 million gallons per year of renewable diesel.

Using a proprietary thermal depolymerization production technology, the animal fats will improve the fuel’s ignition properties, the companies said,.

Investments made by ConocoPhillips and Tyson will allow for the processing and handling of fat and enhance the ability of the United States to produce energy from a variety of sources, including domestically-produced vegetable oils.

The processing technology was developed at ConocoPhillips, culminating in a successful test at the company’s Whitegate Refinery in Cork, Ireland. ConocoPhillips began commercial production of renewable diesel using soybean oil in Ireland late last year.

The alliance is expected to add to Tyson’s long term financial performance, adding between $0.04 and $0.16 cents per share in additional annual earnings, the company said.

According to a report by Bloomberg, ConocoPhillips and Tyson appear to have lobbied the White House and other Bush administration officials to expand a tax break which may put hundreds of millions of dollars in the two companies' pockets, while making it harder for competition.

The Bloomberg article suggested small companies in the alternative-fuels market will be hampered because they'll have to build new facilities, while ConocoPhillips can claim the new tax credit, introduced by the IRS earlier this month, simply using existing facilities.

Last week, ConocoPhillips, the third-largest oil company in the U.S., announced a separate biofuel research initiative. See Late to game, ConocoPhillips funds biofuel research.

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