GREEN fuels firm D1 Oils yesterday said talks of a possible tie-up were reaching an "advanced stage".

Although the Middlesbrough-based biodiesel producer would not confirm who the discussions were with, its share price surged forward, fuelled by City rumours that potential investors could include BP.

The plc first announced in July last year that it was in negotiations with certain parties regarding the possible acquisition of a substantial, but less than a controlling, shareholding in the company.

At the time, a source, who asked to remain anonymous, told The Northern Echo they believed the mystery buyer was BP.

In a statement to the stock market yesterday, the company said: "As previously announced, a non-binding memorandum of understanding regarding a strategic collaboration has been agreed.

"The board believes that these discussions are now reaching an advanced stage, though there can be no certainty that any transaction will be forthcoming.

"We will update the market regarding any developments."

Within hours of making the announcement, shares in the company had risen by nearly seven per cent, to 213.75p.

Earlier this year, D1 posted full-year pre-tax losses of £12.6m, compared with £7.9m a year earlier, while turnover more than tripled to £1.6m on the back of a deal with Petroplus.

The plc said it had made huge progress last year, highlighting the success of its jatropha planting programme, the commissioning of its Teesside refinery and the acquisition of a second processing site on Merseyside.

D1 has four refineries in Middlesbrough and completed the £3m acquisition of its second site at Bromborough in January this year.

Over the past few months, shares in the company have risen from a low of 131p in March to close last night up 8.25 per cent, or 16.50p, at 216.50p.