London-based Hydrodec Group plc, the cleantech industrial oil re-refining group, announced it has reached Heads of Terms on an agreement to collaborate with Essar Oil UK Ltd. (EOUK) to develop re-refining opportunities in the UK as a joint venture at the Stanlow refinery complex in Cheshire, including a re-refinery which is capable of processing up to 100 million litres of used lubricant oil into API Group II+ and Group III base oil by 2016.

The Heads of Terms contemplate the combination of the existing infrastructure, expertise and operating capability of EOUK with both Hydrodec’s proprietary technology and feedstock from Hydrodec’s UK subsidiary (t/a OSS Group) to create the leading European oil re-refining centre at Stanlow, the UK’s second largest refinery. The Stanlow base oil plant, which was part of a fuels refinery that India-based Essar bought from Shell last year, had the capacity to produce 5,000 barrels per day of Group I base oil.

Two discrete re-refining operations are envisaged, initially for transformer oil and subsequently for general used oil, with a potential combined capacity of up to around 130 million litres per annum and potential revenues of approximately US$150 million per annum at attractive rates of return.

The collaboration will be conducted in three phases: (i) establishing a transformer oil re-refining business utilising Hydrodec’s existing technology; (ii) developing Hydrodec’s new lubricants technology through a pilot plant stage; and, (iii) establishing a general used lubricant re-refining business deploying the new lubricants technology.

Hydrodec intends to establish a transformer oil re-refining business which is capable of processing around 27 million litres of new, branded SUPERFINETM transformer oil from used transformer oil. Hydrodec considers it likely that this be established in two stages with an initial two train processing facility commissioned by end 2014 drawing used oil feedstock from within the UK and imported from other countries such as the US and Continental Europe.

As an initial step, Hydrodec and EOUK will consider importing SUPERFINETM for sale in the UK which Hydrodec currently manufactures in the US.

With EOUK’s assistance, Hydrodec is likely to establish the lubricant oil pilot plant for the new general used-oil technology in the Stanlow area in the first half of 2014.

Hydrodec then intends to create a lubricant oil re-refining business at Stanlow in partnership with EOUK which is capable of processing up to 100 million litres of used lubricant oil into high grade Group II+ and Group III base oil for sale into the UK and continental Europe by 2016.

The Heads of Terms are non-binding and the collaboration and proposals envisaged are subject to the entering into of definitive legally binding agreements. There can be no assurance that any transaction will be concluded.

Volker Schultz, Essar Oil UK Chief Executive Officer, said: "We look forward to jointly developing this innovative project, which will combine Hydrodec's proprietary technology with Stanlow's considerable operational and project execution expertise."

Ian Smale, Chief Executive Officer of Hydrodec, commented: ‘This agreement will transform our ability to deliver our UK strategy. In Essar and its Stanlow refinery we are partnering with a leading international oil refiner with all the existing facilities and capability required for the successful delivery of the Hydrodec re-refining process. We believe a combination of our oil collection, feedstock delivery and technology with Essar’s refinery operations and process management expertise will prove extremely powerful for the longer term expansion of our business into new markets. It has the potential to make the UK the oil re-refining hub of Europe.’

Hydrodec's technology is a proven, highly efficient, oil re-refining and chemical process initially targeted at the multi-billion US$ market for transformer oil used by the world's electricity industry. Spent oil is currently processed at two commercial plants with distinct competitive advantage delivered through very high recoveries (near 100%), producing 'as new' high quality oils at competitive cost and without environmentally harmful emissions. The process also completely eliminates PCBs, a toxic additive banned under international regulations.

Hydrodec's plants are located at Canton, Ohio, US and Young, New South Wales, Australia. Hydrodec recently acquired the business and assets of OSS Group, the UK's largest collector, consolidator and processor of used lubricant oil and seller of processed fuel oil, with a national network of oil storage and transfer stations, currently serviced by a fleet of more than 90 trucks which collect used oil and other garage workshop waste from over 30,000 customers. Used oil is converted into processed fuel oil at OSS’s plant at Stourport and principally sold on to the UK quarry and power industry.

Essar Oil UK Ltd is a subsidiary of the London listed Essar Energy plc. Essar Oil UK Ltd owns the Stanlow refinery which is the UK's second largest refinery with throughput capacity of 296,000 barrels per day, or 14.6 million metric tonnes per annum. Essar Energy also, through its subsidiaries, owns one of India's fastest growing private sector oil and gas companies with a diverse portfolio of exploration and production assets, including the Vadinar refinery, located in Gujarat, which is India's second largest private sector oil refinery with throughput capacity of 20 million metric tonnes per annum; and is one of India's largest private power producers with 3,910MW of installed capacity and projects under construction to expand its capacity to 6,700MW.