Clean Harbors, Vertex Wont Pay for Oil


Announcements by Clean Harbors and Vertex Energy last week suggest a trend in the U.S. used oil collection business towards paying no fee or charging for collecting used oil.

Clean Harbors announced Dec. 18 that its Safety-Kleen rerefining business is eliminating its pay-for-oil program and replacing it with either a zero-pay or charge-for-oil rate structure, citing adverse conditions in the base oil marketplace. On Dec. 19 rerefiner and used oil collector Vertex Energy said it would move to a service fee model for collection of used motor oil and environmental services starting in 2015.

Given the adverse conditions in the base oil marketplace and current energy market dynamics, we are taking proactive action to further reduce costs associated with the procurement, transportation and processing of used oil, Safety-Kleen President Jerry Correll said in a news release. Our new zero-pay and charge-for-oil policy will apply to all U.S. and Canadian used oil generators that Safety-Kleen services. As the largest collector of used oil in North America at more than 200 million gallons annually, Safety-Kleen is taking a leadership approach to the market and realigning our pricing structure to levels that more accurately reflect the current environment.

The margins in Clean Harbors oil rerefining and recycling segment have come under substantial pressure since early 2013. Our goal is to protect and expand our margins, and ultimately return profitability in this segment to more historical levels. The actions we are announcing today are necessary to achieve those goals.

The decline in API Group II prices during the last several months, and the reduction in oil prices have been the primary reasons the company needed to step back and reevaluate what it could pay for used oil, Correll told Lube Report. He noted that Group II postings have been reduced by more than a dollar a gallon over the last four to six months. Safety-Kleens rerefineries produce about 80,000 gallons/year of Group II base oil, he said.

The reductions are impacting our top and our bottom line, he said. We certainly have had some significant headwinds when it comes to being able to realize the price reductions and still continue to carry the relatively high cost of the raw materials we had to acquire. Hopefully, well be able to work our way through a plan and continue to collect the volumes we need to feed our rerefineries. We think with the markets the way they are, that theres a good opportunity for us to do that.

Vertex said it had reduced the price it pays for internally collected used motor oil by more than 50 percent since September 2014. The company stated it is currently resetting third party oil purchasing prices to reflect the current market conditions.

As a major refiner and one of the largest third party used motor oil providers in North America, we are joining others in taking a leadership role in improving industry profitability, Vertex Chairman and CEO Benjamin Cowart said in a news release. It is our belief that it is time for the collectors to start charging for their services given the current market conditions and the value the industry adds in the handling of this regulated waste stream. Moving to a charge for services model for collected [used motor oil] is a key milestone in improving the long term prospects of the industry. Cowart concluded, Given the recent price changes by the major stakeholders in the industry, our valued suppliers now have the ability to work with their used oil generators and reestablish their pricing structure for the services they provide, while maintaining the viability of their business and our industry.

Universal Environmental Services (Avista Oil USA) – which operates a rerefinery in Peachtree City, Ga., with 1,250 b/d of API Group II rerefined base oil capacity, and collects used oil – agreed its time for a change.

We firmly agree that the oil price should go to zero (or charge), UES (Avista Oil USA) CEO Juan Fritschy told Lube Report. This reflects the new balance of the market. There is an abundance of used oil, and some generators are finding it difficult to find a collector to collect their oil. This trend is growing by the day. We think that, barring extraordinary events, the market will go to a charge-for-service market.

Vertex officials did not respond to requests for comment by deadline.

Not all companies are joining this bandwagon. Niagara Falls, N.Y.-based regional used oil services provider Eco-Maxx proclaimed yesterday it would maintain its pay-for-oil model. Steve Larkin, Eco-Maxxs director of sales, acknowledged that crude oil futures, which are currently less than $60 per barrel, have significantly devalued used motor oil. But we all know crude oil is volatile, Larkin said in a news release. Over the last seven years weve seen it as high as $145/barrel and as low as $37/barrel. While we are certainly concerned about the recent trends in oil futures, we do not feel the need to charge for oil pick up.

Eco-Maxx Director of Operations Brian Carney noted the companys business model is not dependent on rerefineries. There is still value in used oil, Carney said in a news release. Its just not as valuable to rerefineries when crude oil is trading so low. Because were not tied to rerefineries, we can continue to pay for oil at reduced rates. And when the crude oil market returns to its historical averages, we will increase our pay rate accordingly.

Norwell, Mass.-based Clean Harbors acquired rerefiner Evergreen Oil out of bankruptcy for $60 million in 2013 and Safety-Kleen for $1.3 billion in December 2012. Evergreen Oils Newark, Calif., rerefinery – now considered part of Safety-Kleen operations – has 1,150 barrels per day of Group II capacity. Safety-Kleens East Chicago, Ind., rerefinery has 800 b/d of Group I and 4,200 b/d of Group II capacity. Its rerefinery in Breslau, Canada, has capacities of 700 b/d of Group I and 1,200 b/d of Group II.

Vertex collects oil through its H&H Oil subsidiary in the Texas region and Heartland Petroleum in a four-state region. Based in Houston, Texas, Vertex also has offices in California, Illinois, Ohio and Georgia. The company recently closed on its acquisition of Heartland Group Holdings – a used oil collection network and rerefinery in Columbus, Ohio – for $16.5 million in common stock. The Heartland rerefinery has 1,500 b/d Group II capacity.

In March, Vertex announced it agreed to buy Omega Holding Co.s rerefining assets, which include a used oil collection network, two facilities in Louisiana, the 1,400 b/d Group II Bango Oil rerefinery in Nevada, and Cam2s lube oil blending plant in California, for nearly $50 million in cash, stock and assumed liabilities.

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