Essar Forms Joint Venture to Re-Refine Oils at U.K. Plant

Essar Energy Plc (ESSR) will form a venture with the U.K.’s Hydrodec Group Plc to re-refine industrial oils, capturing higher profit margins from specialty products.

The companies agreed to re-process the oils at Essar Energy’s Stanlow refinery in northwest England, Hydrodec said today in a statement. They expect revenue of $150 million a year starting in 2016 when the new units will be fully operational.

Europe’s economic slowdown has led to overcapacity among oil processors and narrower refining margins, or the profit from turning a barrel of crude into products. Essar Energy, a unit of Mumbai-based Essar Group, is among companies studying new technologies to buoy earnings and curtail costs, and has already switched to cheaper gas from fuel oil to power units at Stanlow.

The companies will invest a combined $50 million in a facility to re-refine transformer oil and subsequently base oil, used in lubricants, according to Hydrodec. The first unit of the 130 million-liter-a-year complex will be completed in 2014 and fed with used oil feedstock from the U.K., the U.S. and Europe.

Hydrodec advanced as much as 3.9 percent, the most in almost three weeks, and was up 2.9 percent at 13.25 pence as of 1:13 p.m. in London trading. Essar Energy dropped 1 percent to 112.6 pence, paring an earlier 5.4 percent decline.

The re-refining project combines Hydrodec’s proprietary technology with Stanlow’s “considerable operational and project execution expertise,” Volker Schultz, chief executive officer for Essar Oil U.K., said in the statement.

To contact the reporter on this story: Nidaa Bakhsh in London at nbakhsh@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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