The bioenergy company will be called BP Bunge Bioenerga, will operate on a stand-alone basis and will have 11 mills across Brazil.
The company will crush up to 32 million metric tonnes to produce ethanol and sugar – products which will be used to produce renewable energy to power all its sites and the country’s main grid.
The business will be ranked the second largest bioenergy player in Brazil by effective crushing capacity.
The bioenergy company is expected to be headquartered in Sao Paulo, Mario Lindenhayn from BP will be Executive Chairman, Geovane Consul from Bunge, will be CEO.
Dev Sanyal, chief executive of BP Alternative Energy, said: "Biofuels have a key role to play in the energy transition and Brazil is leading the way by developing this industry at scale. In one step, this agreement will allow BP to significantly grow the size, efficiency and flexibility of our biofuels business in one of the world's major growth markets. With our shared commitment to safety and sustainability, the combination of BP and Bunge's assets and expertise will allow us to improve performance, develop options for growth and generate real value. BP Bunge Bioenergia will be well-placed to play a significant part in meeting Brazil's growing demand for both biofuels and biopower."
The deal is expected to be closed by the fourth quarter of 2019.