Hydrodec Group plc, the clean-tech industrial oil re-refining group, announced a major expansion of its North American business through a strategic partnership with G&S Technologies Group, a New Jersey-based electricity transformer recovery services group with a 50-year track record of serving the industrial and utility industries throughout the US.

The deal involves the creation of a new entity, Hydrodec of North America LLC, in which Hydrodec will ultimately own 50.1 per cent. The newly created company will be one of the largest handlers and processors of waste and polychlorinated biphenyl (“PCB”) contaminated transformer oil in North America. The partnership will also enable Hydrodec and G&S to accelerate their growth in the world’s biggest energy market while sharing the risks and capital investment between strongly complementary businesses.

Ian Smale, Chief Executive of Hydrodec, commented: “This partnership enables Hydrodec to aggressively expand its successful North American business and is a major step on the path to profitability for the Hydrodec Group. The deal creates an extremely competitive and efficient oil re-refining business at scale, will increase Hydrodec’s SUPERFINE™ penetration in our key US markets and de-risk our expansion through our association with G&S and their access to feedstock.”

The company said in November of last year it was negotiating feedstock volumes with a potential partner to increase annual capacity in North America to 65 million liters (17.2 million gallons) from 27 million liters. It plans to add six U.S. production units to its current four, which may include two at its site in Canton, Ohio, Smale said at that time.

George Newmark, Vice President of G&S Technologies, commented: “The deal creates an alliance between the best asset recovery and service provider with the best oil re-refining technology, providing our electrical utility industry customers with a compelling one-stop sustainability offer.”

Under the deal, Hydrodec will contribute its existing re-refining plant in Canton, Ohio, with a current re-refining capacity of 27 million litres per year. In addition, Hydrodec will license its patented clean-tech re-refining technology and process to the new company in return for ongoing five per cent royalties on total sales in North America of its re-refined SUPERFINE™ branded oil, a product which meets the relevant Industry standards for new transformer oil. Hydrodec's patented process allows used transformer oil, as well as SUPERFINE™, to be refined an indefinite number of times.

G&S, a privately-owned conglomerate with revenues in excess of US$200 million in 2012, will commit used transformer oil associated with their utility asset recovery service sufficient to expand production capacity by up to a further six processing trains.

Both parties have committed to invest equally in the expansion of the Company’s re-refining capacity over the next two years. The total cost of the additional capital investment is expected to be approximately US$15 million, subject to further detailed analysis. Importantly, the additional commitment of G&S feedstock to the Company will provide security of supply and will significantly de-risk the expansion of the business.

In addition to its plant in Canton, Ohio, Hydrodec also operates a plant in Young, New South Wales, Australia. G&S’s main facility is in Kearny, N.J. with additional facilities in Oregon, Alabama and New York.

The total US consumption of transformer oils is estimated at 400 million litres per annum (recently assessed to be growing at 6 per cent per annum), compared with Hydrodec’s US SUPERFINE™ sales volumes of 19 million litres in 2012. Hydrodec’s existing US capacity is 27 million litres per annum and it is planned that this will increase to 65 million litres per annum under the strategic partnership representing a 15% share of annual US consumption.

G&S handled approximately 26 million litres of waste transformer oil in 2012, of which approximately three million litres was procured for re-refining by Hydrodec.

Through its patented process Hydrodec refines and then also markets and distributes premium quality naphthenic base oil. This oil is used as a base oil or carrier fluid in many applications such as lubricants manufacture, rubber processing, spray oils, printing inks, explosives and concrete form spray.

Hydrodec announced in June of last year that the US Environmental Protection Agency has issued Hydrodec with a final permit for the storage and treatment of polychlorinated biphenyl (“PCB”) contaminated used transformer oil in the US.