While plant construction was ongoing, we were also adding service customers and building our used oil collection volume, and we are now up to an annual run rate of approximately 25 million gallons per year, said Heritage President and CEO Joe Chalhoub. During 2011, we added more than 12,500 new used oil customers, and we anticipate accelerating the growth in our customer base as we continue to roll out our used oil services to the 67 branches in our network. We expect that after breaking in the plant and completing performance test runs, we will begin running at approximately this rate (50 percent of capacity) and plan to ramp up to full capacity by 2013.

As our plant ramps up the feed rate, it should have a linear relationship with the base oil production we expect as well, Chief Operating Officer Greg Ray told Lube Report If in a few months were running at 50 percent of feed capacity, we also expect to be running at about 50 percent of the designed base lube oil production.

Elgin, Ill.-based Heritage-Crystal Clean is still determining what the ramp-up curve will look like during the next year. There are a number of constraints we need to work through, including the feedstock supply, the logistics, and the plant operation, Ray said. As we work through all that, well gradually raise the operating rates of our plant until we get to capacity.

While accounting is not yet final, Ray noted the current estimated project cost will be $54 million. This is slightly higher than previously estimated, and includes additional costs for profitability-related scope changes to the project as well as incentive payments to contractors to accelerate mechanical completion, he explained. During the second half of 2011, we operated the front end of our rerefinery, producing and selling intermediate products, and gaining valuable experience with the production capabilities of this facility. While in this intermediate mode, our results did not reflect the full potential of rerefining.

After completing the plant construction in December, Heritage-Crystal Clean started up the hydrotreating section of the refinery and began to produce lubricating base oil during January 2012. The costs for starting this phase of the plant, and the accelerated expansion of our used oil collection program, have led to greater pressure on our margins, and this may continue through the ongoing shakedown of the plant during the first quarter of 2012, Ray said. As the plant commences normal operations, we expect to increase the potential profit contribution from our oil business.

Heritage-Crystal Clean, which provides parts cleaning and waste services, has in the past sold the used oil it collects as fuel to electric utilities and asphalt plants. The used oil is now expected to primarily serve as feed stock for the rerefinery. The companys management team includes former Safety-Kleen executives and engineers with experience in designing and building rerefineries.