BP said it agreed to pay $680 million for an 83 percent stake in Brazilian ethanol and sugar producer Companhia Nacional de Acucar e Alcool and to refinance the company's long-term debt.
BP Chairman Carl-Henric Svanberg said the acquisition fits his company's strategy of expanding its low-carbon portfolio.
"Low-carbon energy will play an increasingly significant role in meeting world energy demand," he said in a statement. "BP is committed to producing biofuels to help meet this demand."
BP in an annual energy outlook estimated that low-carbon energy is expected to be the fastest growing energy sector for years to come. Biofuels should lead the way in that development, the company added.
The British energy company acquires two operation facilities with another one under construction. Production should reach about 9 million barrels per year once all facilities are at full capacity.
Fuel is generated through the processing of sugar cane.
BP said the acquisition is the largest to date for its alternative energy division.