How Much is "Old" Fuel Oil Worth?

Litigation, North America

When a fuel oil-fired power plant was sold for demolition and site reclamation, the parties could not agree on the value of the residual fuel oil inventory. Baker & O'Brien determined the "heel" in the residual product, disposition practices and options, and the ultimate product net value. We analyzed the quality of the product and assessed its value.

In recent years, as power generation plants have transitioned to natural gas firing, fuel oil is gradually being replaced. In some cases, this means that the power generation facilitiesare modified from fuel oil to natural gas but, in many cases, the fuel oil fired power plants are closing and giving way to modern natural gas fired cogeneration plants. In such instances, any fuel oil remaining in onsite storage tanks must be disposed of in some way. Even when "empty," fuel oil storage tanks always contain a minimum quantity of oil called the "heel," which is the volume in the tank below the minimum operating level. In addition to fuel oil, the heel may contain sediments and colloids, collectively referred to as "sludge," which can be of little or no value.

When a fuel oil-fired power plant was sold for demolishing and site reclamation, the parties agreed to a price that included an estimated value, based on historical analyses, of the remaining fuel oil inventory. As there were several large storage tanks onsite, the inventory, if saleable, could potentially be worth a significant amount. However, if it was not of saleable quality, it might have to be disposed of as hazardous waste and be worth nothing - or even incur disposal costs. To allow demolition to proceed, all the remaining inventory had been transferred to a single tank. This was the volume for which the value was in question.

Baker O'Brien was engaged to investigate and provide opinions on: (1) the quantity of sludge potentially present in the fuel oil; (2) recommended practices for removing and disposing of the tank contents; (3) disposition options, e.g., sale for blending, downstream processing, incineration; and (4) the likely net value of the remaining fuel oil. Based on oil quality analyses from different levels inside the tank, our consultants suggested several disposition options for the material and estimated its net value. Our recommendations were used to agree a course of action for disposition.

Charles G. Kemp

Vice President

Petroleum Refining / Transportation and Storage / Power Generation
Commercial Contracts / Asset Valuations / Markets & Strategy / Litigation / Expert Witness Testimony / Product Quality / Pricing / Quantum/Damages Assessment
North America