Meat producer Tyson Foods Inc. (TSN) and synthetic fuel maker Syntroleum Corp. (SYNM) said they plan to set up a $150 million plant to produce fuel from animal fat, aimed at the renewable diesel and jet fuel markets.

Shares of Syntroleum were trading up more than 17 percent at $3.24 in afternoon trade on Nasdaq. Tyson shares were up 28 cents at $23.35 on the New York Stock Exchange.

In a statement, the companies said they formed a joint venture, Dynamic Fuels LLC, to construct and operate more such facilities. Tyson will supply feedstock, mainly derived from animal fats, greases, and vegetable oils, to the plants.

Syntroleum, which converts natural gas to synthetic liquid fuels, said it expects the first facility to be located in south central United Sates.

The company expects the plant to produce about 78 million gallons per year of renewable synthetic fuel from 74 million gallons per year of feedstock beginning in 2010. Construction of the facility is expected to start in 2008.

The $150 million project, of which $135 million is for the construction of the plant, will generate about 250 short-term jobs and 65 permanent jobs.

Tyson Foods said it expects the first facility to produce about 81 percent diesel, 14 percent naphtha and 10 percent liquefied petroleum gases.

Syntroleum said it expects the venture to be eligible for a federal excise tax credit of $1.00 per gallon for diesel produced and $0.50 per gallon for naptha and liquefied petroleum gases produced.

Annual operating profit, expected to begin in 2010, is seen to be between $35 million and $60 million.

In April, Tyson formed a similar alliance with ConocoPhillips (COP) to produce biodiesel from animal fat.