While many view the ongoing energy transition as an all-or-nothing proposition between renewables and fossil fuels, the rate of change will be measured in decades, making companies that improve the efficiency and performance of existing technology fertile ground for your next investment.
One company with a wide moat worth analyzing is ReGen III (TSXV:GIII), market capitalization C$33.64 million, whose stock has added only 8 per cent since 2020, despite being on a near-term path to commercializing patented technology to upcycle used motor oil (UMO) at a quality and yield that far outmatches the competition.
The company recently announced industry veteran Tony Weatherill as CEO and President. With a proven record and vast network to lean into, Weatherill’s mandate is to fast-track commercial opportunities, making this one stock to watch.
Operating in an over US$40 billion global motor oil market, ReGen III and Weatherill aim to address an unmet need in UMO recycling: the production of higher-grade, circular base oil products industry requires to achieve net-zero goals. The industry has a long way to go; according to the U.S. Department of Energy, 1.4 billion gallons of used motor oil and industrial lubricants are available for recycling every year, but only 1 in 5 gallons is recycled into a base oil and a staggering 55 per cent (~750 million gallons) is burned as fuel or discarded into the environment (slide 21).
How does ReGen III’s re-refining technology stand out from competitors?
ReGen III’s globally patented technology has been proven at pilot scale (slide 24), showcasing how it can upcycle waste motor oil into high-value, synthetic-grade base oils. These base oils are an essential component of lubricants and used across numerous industries, including aviation, metal processing and automotive applications (slide 5). Base oils can account for a whopping 85 per cent of passenger car motor oil’s total components and fall into different groups depending on their quality:
- Group I, best suited for lawn mowers, 2-stroke engines and industrial processing oils.
- Group II, best suited for older cars.
- Group III, a synthetic-grade oil best suited for newer cars.
While most of ReGen III’s re-refining peers produce Group I or II base oils, ReGen III’s technology produces industry-leading yields of Group III base oils (over 50 per cent), along with Group II+ oils and other co-products. Given that Group III oils have historically garnered a 50 per cent premium to Group II (slide 7), management forecasts EBITDA margins two to three times that of its base oil peers (slide 3). The technology is also advantaged by:
- An 82 per cent reduction in CO2-equivalent emissions compared to producing and burning virgin base oils, resulting in the avoidance of over 900,000 metric tons per year (based on the proposed Texas facility discussed later on).
- The use of a waste product as feedstock (UMO), which reduces input costs significantly as compared to traditional crude oil refining (slide 8).
Group III oils are the leading choice when it comes to fuel economy, reducing engine wear and tear, performing under extreme conditions and extending oil change intervals. While they represent a US$6 billion total addressable market (slide 15), the adoption of re-refined Group III base oils will be a key driver in reducing Scope 3 emissions.
Market demand for Group III oils is expected to grow at a compound annual growth rate of 7 per cent, with re-refined base oils currently making up less than 2 per cent of the global Group III market (slide 6). Additionally, the average barrel of oil produces just 1-2 per cent base oils, according to Lubes’N’Greases, highlighting ReGen III’s opportunity to capitalize on significant market share.
Currently, North American Group III demand is estimated at approximately 30,000 bpd. With the continent producing only about 8,000 bpd, North America relies on imports from Asia and the Middle East for the remainder of its supply at elevated costs and carbon footprints.
ReGen III is ideally positioned to lead the Group III market into the 21st century by minimizing supply chain, tariff and emissions risks, starting in North America and expanding globally as it progresses toward profitability. The initial catalyst on this journey is expected to be the construction of ReGen III’s Texas City re-refining facility, or the purchase and retrofit of an existing re-refinery in order to accelerate time to market.
A CEO that epitomizes tailor-made management
In December 2024, ReGen III hired Tony Weatherill as its new President and CEO. Weatherill is a proven lubricants and petrochemicals executive with over 35 years of leadership experience creating value across the supply chain, driving commercial success, operational excellence and innovation across billion-dollar organizations. His track record makes him an ideal match for ReGen III.
As part of his mandate, Weatherill aims to fast-track production and revenue generation by leveraging his experience across the sector and vast network. Tony and his team are advancing opportunities related to strategic partnerships, mergers and acquisitions, joint ventures and licensing, which stand to accelerate the company’s operational capabilities and market position.
From 2020 to 2023, as Senior Vice President, Commercial, at energy company H.F. Sinclair (NYSE:DINO), he was a key driver behind commercial and marketing activities across a $3.9 billion business operating in over 90 countries. H.F. Sinclair’s Lubricants & Specialties segment is one of the largest North American producers of Group III base oils, operating and exporting under the brands Sonneborn, Petro-Canada Lubricants, Red Giant Oil and HollyFrontier Specialty Products.
During Weatherill’s tenure at H.F. Sinclair, guiding a team of over 1,400 employees, he more than doubled global sales and delivered significant profitability growth, blending operational improvements with numerous successful acquisitions.
Concurrently, from 2019 to 2023, Weatherill excelled in the role of President of Petro-Canada Lubricants, where he oversaw North America’s largest and Canada’s only Group III base oil production facility in Mississauga, Ontario, in addition to commercial strategy, global business development and overall financial and operational performance for all brands mentioned in this segment, each of which has a significant global presence.
Complemented by a technical, product and market analysis background gained through tenures at Petro-Canada Lubricants, ExxonMobil and Chemtura, and enhanced by a leadership team at ReGen III with proven track records at major energy companies, Weatherill’s well-rounded skillset enables the kind of wholistic problem-solving ReGen III needs to get its value-added technology to market.
“At ReGen III, we’re wholly focused on delivering superlative Group III molecules that can really add value to the supply chain,” Weatherill stated in an interview with Stockhouse. “While at Petro-Canada Lubricants, whose products are among the best in the world, I moved the company into new segments, inculcated a culture of constant innovation and instituted business efficiencies, lowering costs and increasing EBITDA, and I believe this path transposes itself to ReGen III.”
Weatherill continued, “Are Group III base oils in a long-term growth market? Yes. Can we be competitive in terms of cost of product versus traditional refiners? Absolutely. Do we have the right channels in place? We’re in discussions with potential offtakers and strategic partners right now. Are we engaged with the right markets? Indeed, we are. Our patents cover every major market in the world. We have the technology, the intellectual property and the relationships we need to make a transformational difference in the lubricants industry.”
A multi-pronged go-to-market strategy
ReGen III is pursuing a multi-pronged go-to-market strategy that encompasses two key avenues:
(1) The opportunistic acquisition and retrofit of an existing facility, where the company believes it can significantly increase EBITDA.
(2) The development of a greenfield project in Texas City, TX, where the company has already significantly de-risked the project.
In Texas, ReGen III has selected a site which boasts storage and logistics infrastructure and strategic access to major land and marine transportation routes via truck, rail, barge and ship. Designed to process 5,600 bpd of UMO, the facility is positioned to become the world’s largest sustainable Group III re-refining operation (slide 3) once it goes live.
Having completed extensive pilot and vendor-scale testing, as well as FEL2 and value engineering as part of the Front End Engineering and Design phase, the next steps in the Texas project are to complete FEED engineering and construction prior to commercial production. ReGen III’s additional milestones met to date for the facility include:
- Securing LOIs and draft contracts for approximately two thirds of its feedstock.
- Securing an indicative US$108 million term sheet from Export Development Canada.
- Engaging in ongoing discussions with numerous financial institutions, including National Bank to lead M&A and project financing, and Raymond James to support the application process to the Department of Energy’s Loan Programs Office.
- Engaging with numerous large-scale offtake parties and potential strategic partners/investors, including global industry participants, currently evaluating product samples under non-disclosure agreements.
- Signing a letter of intent (LOI) with Advario North America for the facility.
Of the 750 million gallons of UMO generated in the U.S. that is dumped or burned each year, ReGen III’s Texas facility would be able to return about 80 million gallons back into the circular economy, generating base oils that meet the American Petroleum Institute’s standards for lubricants and motor oil.
With all of this momentum towards breaking ground in Texas City – backed by world-class engineering, construction and licensed vendor teams – Weatherill believes the company is on track for initial production in 24-to-30 months after a final investment decision, a timeframe that may be expedited through acquisition and retrofitting (slide 11), providing U.S.-based lubricant blenders with a sustainable alternative to foreign imports.
Substantial upside at a discount
Experienced investors possess the ability to remain unaffected by market fluctuations. Seeing beyond the general market fears surrounding a stock, they can thoroughly assess the underlying company and independently conclude whether or not undervaluation is at play.
In the case of ReGen III, the company’s pre-revenue operations are keeping investors on the sidelines, despite its technology’s unmatched yields, efficiency and sustainability in a growing multi-billion-dollar market, one where its CEO made his name and an ESG focus is now table stakes. This dynamic is creating an opportunity to act on ReGen III’s high-conviction thesis, allowing leadership to continue substantiating a near-term stock re-rating by:
- Converting ongoing discussions into definitive agreements for commercial offtake, validating the technology for a wider range of market participants.
- Booking initial revenue and guiding the technology’s compelling economics towards profitability.
- Pursuing strategic opportunities in patented jurisdictions, including North America, South America, Europe, Asia and the Middle East, including potential applications of Group III base oils in heavy-duty trucks, turbines, gear boxes and as coolants for electric batteries.
A portfolio aligned with the greatest probabilities of success is key to achieving outstanding long-term returns. With its well-defined strategy and significant potential to disrupt the industry as a leading producer of low-carbon Group III base oils, ReGen III represents one such probability, and as such, a compelling investment opportunity. By establishing a position now, investors can greatly improve their chances of a significant outcome in a rapidly evolving market.
Join the discussion: Find out what everybody’s saying about this environmental stock’s motor oil recycling technology on the ReGen III Corp. Bullboard and check out Stockhouse’s stock forums and message boards.
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(Top image: ReGen III)