As BP struggles to stop the oil gushing out into the Gulf of Mexico, an announcement comes today that the company is making a major investment in cellulosic ethanol, as BP Biofuels North America is acquiring Verenium’s cellulosic biofuels business – which includes facilities in Jennings, LA and San Diego, CA – for $98.3 million.

BP and Verenium have been working together to accelerate the development and commercialization of cellulosic ethanol since August of 2008, in a partnership that has been extended on a month-to-month basis several times this year. Under the agreements, BP was funding Verenium’s cellulosic ethanol program as they continued negotiations for a longer-term collaboration.

Under the new agreement, Verenium will retain its commercial enzyme business, including its biofuels enzymes products, and have the right to develop its own lignocellulosic enzyme program. Verenium will also retain select R&D capabilities, as well as rights to access select biofuels technology developed by BP using the technology it is acquiring from Verenium through this agreement.

Verenium President and CEO Carlos A. Riva says the agreement “should give both companies the flexibility to pursue the growth opportunities in the respective businesses and achieve goals in the near-term. As a result of this transaction, Verenium will have the resources to grow our commercial enzyme business while maintaining strategic access to the emerging cellulosic ethanol market in a manner that better fits our resources.”

“This acquisition demonstrates BP’s intent to be a leader in the cellulosic biofuels industry in the U.S. and positions us as one of the few global companies with an integrated end-to-end capability, from R&D through commercialization to distribution and blending,” said Philip New, CEO of BP Biofuels. “Our partnership with Verenium has been very fruitful, enabling the companies to develop a leading cellulosic ethanol technology package, driven forward by the skills and expertise of people from both companies. By acquiring Verenium’s cellulosic biofuels technologies, BP Biofuels should be well placed to accelerate the delivery of low cost, low carbon, sustainable biofuels, at scale.”

BP will become the sole investor in Vercipia Biofuels, a 50-50 joint venture formed by BP and Verenium in February 2009, and will independently manage all of Vercipia’s activities going forward. Similarly, Galaxy Biofuels, a 50-50 joint development company owned by BP and Verenium, will be owned 100% by BP. This transaction is expected to close in the third quarter of 2010.

Verenium is hosting a press conference on the agreement this morning.