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March 9, 2016

Volume 17 Issue 52

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Hydrodec Unloads UK Operations

Citing tough market conditions, Hydrodec Group sold its United Kingdom operations – including its waste oil collection business and a proposed rerefinery – to a substantial shareholder for 1 pound (U.S. $1.43) and assumed debt.

The company said it conducted a detailed review of the operations following a significant deterioration in their outlook. “This deterioration has been driven predominantly by the rapid decline in global oil prices and continued challenging market conditions, which have resulted in Hydrodec (UK) Ltd. generating an increasing level of significant losses,” the company stated in a news release Monday. Despite implementing extensive restructuring and cost-saving measures during 2015, including a 36 percent reduction in its workforce, the company said it has remained exposed to lower prices for petroleum products, and its U.K. operations remain unprofitable.

In December the company held an auction that generated a pool of potential buyers. After reviewing offers, the board chose shareholder Andrew Black, citing his ability to execute the transaction on an expedited basis and the potential to offer Hydrodec a share of future profits from the rerefining project.

Black, a non-executive director of Hydrodec who holds 24.58 percent of the company’s voting shares, will also take on £1.2 million of existing indebtedness to third parties, the news release said.

The deal gives Hydrodec rights to receive 10 percent of Black’s entitlement to future profits from the rerefining project. Black will bear all risk and responsibility for developing the rerefinery going forward.

Given a “significant” cash burn rate and limited cash resources without further fundraising, Hydrodec’s board of directors “concluded it was in the best interests of the company to dispose of the U.K. operations to a buyer able to properly finance and develop the business in the near term.”

According to Hydrodec’s web site, Andrew Black is co-founder of Betfair, an online betting exchange, and served as director of the Betfair Group from 1999 to 2010. He holds board seats at a number of companies and investments in numerous others, with a focus on technology. Black joined Hydrodec’s board of directors in July 2011 and also serves on the board’s remuneration and nominations committees.

In 2013, Hydrodec acquired U.K.-based used lube oil collector OSS for €4.7 million (then U.S. $6.3 million), securing feedstock for a planned pilot plant that would rerefine used paraffinic base stocks to potentially produce API Group II and III base oils.

In 2014, Hydrodec signed engineering, licensing and technology collaboration agreements with Chemical Engineering Partners for a planned U.K. rerefinery capable of producing Group II base oil. The transfer of the U.K. license and basic engineering package from Chemical Engineering Partners to Black is subject to CEP’s consent, which Hydrodec has agreed to use “reasonable efforts to achieve.”

In July 2015, Hydrodec leased a 9-acre site at Port Wirral, in northwest United Kingdom, for use in the first phase of the rerefinery. On its web site, the company said it wanted to develop the rerefinery by the end of 2017.

Photo: Peel Ports Group

Hydrodec had leased land at the Queen Elizabeth II Docks, at the mouth of the Manchester Ship Canal, from Peel Ports Group.

In Monday’s announcement, Hydrodec indicated it will focus now on its transformer oil technology and business, seeking opportunities in the $2 billion-plus global transformer oil market.

“Specifically, as the company moves forward through 2016, the board intends to look to strengthen Hydrodec’s footprint in the U.S. and in the international transformer oil market, with the sales price of transformer oil less correlated to global crude oil prices and where it believes Hydrodec has a competitive advantage through its transformer oil rerefining technology.”

In September U.K.-based Hydrodec said it posted a $7.5 million loss for the six months ending June 30, compared to a $3 million loss during the first half of 2014. The company has not yet issued its annual report for 2015.

“Whilst there is more to do to reduce cost and strengthen margins, our focus continues to be on delivering operational performance and efficiencies, and driving the company to a profitable 2016,” Hydrodec Board Chairman Colin Moynihan said in the company’s news release.

Hydrodec also appointed Chris Ellis, previously acting chief executive, as chief executive. Ellis succeeded Ian Smale, who stepped down Dec. 4. Ellis said the disposal of the U.K. operations releases working capital that will position the company to deliver its plan of profitable trading in 2016.

The company began commercial production at its transformer oil rerefinery in Canton, Ohio, in October 2008. It uses a proprietary catalyst to remove impurities and produce a rerefined product the company describes as hydrogenation-refined naphthenic mineral transformer oil. The facility was temporarily shut down after a December 2013 fire but resumed operations last year. The company also operates a transformer oil rerefinery in Young, Australia.