Rerefiner Expands Its Universe

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Immediate opportunity as well as long term corporate strategy prompted Wichita, Kan.-based Universal Lubricants to purchase a used oil collection business in Texas, Midstate Environmental Services. The May 2 acquisition announcement did not disclose financial terms.

Universal Lubricants CEO John Wesley acknowledged that some of the used oil collected by Robstown-based Midstate will eventually supply a second rerefinery projected to treat 25 million gallons of feedstock per year. Noting that the land already has been acquired and engineering plans approved, Wesley anticipates the plant to be operational by late 2013 to early 2014.

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Nobody with an ounce of business sense would build something that could cost between $50 million and $100 million without first assuring that it had a source of raw material to feed it, Wesley told Lube Report. I dont want to tip my hand, but it makes sense to say the new plant wont be near our Wichita operation.

The reasoning is in the logistics. ULs closed loop process involves a return trip: That is, it strives to ensure the integrity of its product by collecting, rerefining, blending and redistributing its own motor oil, maintaining guardianship within the chain. And so, we need to build geographically, said Wesley. We want to build smaller, more nimble plants that are closer to population centers.

Once at the plant, the used oil undergoes a hydrotreating process to remove all of the water, fuel and solvents as well as metals, asphalt flux and other heavy contaminants. Universal says that between 65 and 70 percent of the base stock is converted into high grade, usable oil. Wesley noted that only 10 percent of an approximate 1.3 billion gallons of used oil is rerefined each year in the United States.

Obviously, this provides a great opportunity for anyone who is in the rerefining industry, Wesley said, adding that used oil improperly disposed of presents environmental hazards.

Although he wouldnt disclose a location or specific information, Wesley said the new plant would likely employ the same technology that is used at the Wichita plant, which treats up to 15 million gallons of feedstock per year. We have about 24 months of operating experience with this technology. Why would we want to use something else?

Universals interest in Midstate wasnt singularly focused on used oil, Wesley said, adding it was a natural fit to Universals overall corporate strategy and made sense to pursue immediately. The fit was seamless, Wesley said. Midstate touches on all three of our business interests and gives us an opportunity to expand into places where our footprint could be turned into strong footholds.

Weve known these folks for a long time, and organizationally they are very strong top to bottom, Wesley said, anticipating that by the time Midstate is integrated into Universal, the company will grow to about 450 people and have more than 35 facilities in 16 states.

Wesley noted that Midstate, which bills itself as Texas largest privately owned used oil collector, will operate under its own name and continue to serve its existing customers as before. Midstate is strongly Texas oriented but also processes used oil in western Louisiana and eastern New Mexico.

With Midstates collected used oil representing additional feedstock for new rerefineries, the acquisition pushes UL to the forefront of the rerefining and lubricants industry, Joe Hendricks, owner of Midstate, said in the acquisition announcement. While we look forward to serving our existing customers, we also look forward to the continued expansion and success that will result from the partnership.

Wesley noted that the Midstate purchase was Universals fourth strategic acquisition, and he anticipated others would follow. We see ourselves as consolidators, he said. Our footprint is already strong in the Midwest, and I can see us expanding east beyond the Mississippi.

Universal produces API Group II base stocks, which it blends into finished motor oils and sells under the Eco Ultra brand, according to the company’s website. Its products include automotive oils with a wide range of viscosities, hydraulic oils and automatic transmission fluid.