Investor Presentation

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1 Investor Presentation Producing Tomorrow s Energy N o v e m b e r 2018

2 Disclaimer This document may contain forward-looking statements including words such as may, can, could, should, predict, aim, potential, continue, opportunity, intend, goal, estimate, expect, expectations, project, projections, plans, anticipates, believe, think, confident, scheduled, or similar expressions, as well as information about management s view of Vertex Energy s future expectations, plans and prospects, within the safe harbor provisions under Private Securities Litigation Reform Act of These statements involve known and unknown risks, uncertainties and other factors which may cause the results of Vertex Energy, its divisions and concepts to be materially different than those expressed or implied in such statements. These risk factors and others are included from time to time in documents Vertex Energy files with the Securities and Exchange Commission, including, but not limited to, its Form 10-Ks, Form 10-Qs and Form 8-Ks. Other unknown or unpredictable factors also could have material adverse effects on Vertex Energy s future results. The forwardlooking statements included in this presentation are made only as of the date hereof. Vertex Energy cannot guarantee future results, levels of activity, performance or achievements. Accordingly, you should not place undue reliance on these forward-looking statements. Finally, Vertex Energy undertakes no obligation to update these statements after the date of this presentation, except as required by law, and also undertakes no obligation to update or correct information prepared by third parties that are not paid for by Vertex Energy. Industry Information Information regarding market and industry statistics contained in this presentation is based on information available to us that we believe is accurate. It is generally based on publications that are not produced for investment or economic analysis. 2

3 Company Overview Vertex Energy, Inc. (VTNR) is a clean energy company focused on refining and product distribution made from alternative feedstocks and clean crude oils. Produce and commercialize broad range of high-purity intermediate and finished products, such as fuel oils, marine-grade distillates and high-purity base oils used for lubrication. Reputation for producing high purity Group II+ base oils and having built a solid platform for distribution, marketing, sales and technical support of its imported Group III base oils. One of the largest refiners of used motor oil in the U.S. Key Logistics include aggregation and transportation of refinery feedstocks, such as light crude, used motor oil, and other petroleum and chemical co-products along with a downstream products distribution systems. 3

4 Company Snapshot Specialty Refining capacity of over 2.7 million barrels annually with operations located in Houston and Port Arthur (TX), Marrero (LA),and Columbus (OH). LTM* Revenue Breakdown Additional Facility Myrtle Grove is located on a 41 acre industrial complex along the Gulf Coast in Belle Chasse, LA, with existing hydroprocessing and plant infrastructure assets, and 214,000 barrels of storage. 9.3% 12.2% Black Oil Recovery Operates in the entire value chain, including truck, rail and barge aggregation of feedstock, distribution and sales of refined products to the US and global markets. 78.5% Refining & Marketing Proprietary and patented refining technologies that produce high purity base oils, VGO and marine grade fuels. *LTM refers to Last 12 Months ending 9/30/18 4

5 Integrated Specialty Refining Company Addressable Markets Refining Feedstock Aggregation Self Supplied Feedstock Low sulfur marine fuels for sea going vessels. High purity base oils for lubrication Specialty blendstocks for asphalt, gasoline, pygas and utility fuels Nationwide processing capacity of over 2.7 million barrels. Developed and patented unique UMO processing technology. Third-party aggregation network of ~50 supply points across the U.S. 2 Third-party terminals for aggregation of UMO located in Houston, TX, and Mobile, AL. Growing street-level UMO collection expertise - 30 million+ gallons. 60 trucks operating as collectors across 13 states. Higher-margin internal collection strategy. 5

6 Addressable Market: Marine Fuels - IMO 2020 On January 1, 2020, IMO requires the lowering of sulfur content in Bunker Fuel from 3.5% to.5% IMO 2020 is a regulation to address the environmental risks posed by the high level of sulfur and nitrogen emitted by ships Total diesel demand is anticipated to grow by million barrels per day. Depressed High Sulfur Fuel Oil values will cause the value of UMO to follow UMO feedstock values would likely move the street collection industry back to a No Pay/Charge-For-Oil model Merchant spreads to improve for Vertex 6

7 Addressable Market: High Purity Base Oil Group III base oil demand projected to increase exponentially in the U.S. market within the next decade Heartland Facility, located on Columbus, Ohio, has refining capacity of 20 million gallons Myrtle Grove, located in Belle Chasse, Louisiana, with potential capacity increase to 50 million gallons U.S. Group III Oil Market Key Considerations Group III base oils will become the primary base stock for high quality lubricants needed for high performance engines to meet corporate average fuel economy (CAFÉ) and lower emissions standards Group III base oil market is projected to increase at an annual rate of 10% in the U.S. for the next ten + years. The same trend is eventually expected world-wide Demand is expected to grow by around 50% over the next five years with very limited Group III production capacity in the U.S. (most of which is intended for internal consumption by the producer) High purity Base Oil production from used motor oil is more efficient than from crude oil. Also, the quality of the base oil through re-refining improves as a direct result of the feedstock cycle and the process technology 7

8 Refinery Operation Drivers Self Supplied Feedstock Growth (in thousands) Strategically located Refining assets geared towards specific addressable markets creating earnings leverage 37,500 30,000 22,500 15,000 7,500 CAGR: 23% Collection Volume Exclusive agreement with Penthol C.V. to market, transport, and sell imported Group III base oil in the United States Regional model that can be replicated across the U.S.A. to manage logistics and reduce costs Cost-effective strategy for building the Company s feedstock supply chain by establishing a successful selfcollection and aggregation infrastructure. ' Target Marketing, Sales, and distribution platform for Company s refined products 8

9 Refining Facilities Marrero (Louisiana) Heartland (Ohio) TCEP facility (Baytown) Location: Marrero, Louisiana Annual Capacity: 1.6 million barrels (4800bpd) Finished Product: Vacuum Gas Oil (VGO) Strategic Benefit: Diversification of product mix New ECA-fuel/marine market capabilities Strategic logistical supply location near Mississippi River and US Gulf markets Location: Columbus, Ohio Annual Capacity: 476 thousand barrels (1500bpd) Collection Volume: 10 million gallons Finished Product: Group II+ Base Oil Each self-collected gallon of UMO is estimated to provide a margin or $ $0.30 per gallon over a gallon purchased from a third-party Collection clustered around a re-refinery significantly reduce transportation costs from longer distance suppliers Location: Baytown, Texas Annual Capacity: 833 thousand barrels (2500bpd) Waterfront facility with 20 acres positioned adjacent to the Houston ship channel Provides supply and distribution advantages into one of the largest petro-chemical markets ~100,000 bbls of storage on site that includes finished product tanks, feed tanks, and other tanks Possess EPA transfer facility and USGC marine facility permits 9

10 Other Facilities KMTEX (Port Arthur) Myrtle Grove Location: Port Arthur, Texas Finished Product: Gasoline blendstock, pygas, cutterstock Strategic Benefit: Tolling agreement for strategically located re-refining capacity Location: Myrtle Grove, Louisiana Situated on 41 acres of land along Gulf Coast in Belle Chasse, LA Located just 26 miles South of New Orleans accessible by the Mississippi River and serviced by rail Adjacent to ConocoPhillips Alliance refinery Nearby access to I-10 10

11 National Footprint Regional Focus National Footprint Vertex maintains a national footprint with the capabilities to collect/aggregate feedstock across the country and from major transportation hubs. Terminal Aggregation facility Operating & Manufacturing Refineries Facility to be developed Regional Model Vertex now operates regional hubs in highly strategic locations, which will optimize transportation costs. Swap Agreement Regional Swap Agreement with CLH Heartland Facility Location: Columbus, OH Capacity: 20 million gallons TCEP Facility Location: Baytown, TX Capacity: 35 million gallons Port Arthur Location: Port Arthur, TX Operates under tolling agreement Marrero Facility Location: Marrero, LA Capacity: 69 million gallons Myrtle Grove Location: Belle Chasse, LA Currently unutilized refining asset Vertex operates as a national player (~23% of total UMO refining capacity in North America) while maintaining effective logistical expertise and costeffectiveness of a regional refiner. 11

12 Integrated Logistics Vertex operates and manages a strategic logistics system of terminaling assets for the tendering of ship, truck, rail, and barges for the supplying and distributions of a wide array of refined and imported petroleum products. Modes of Logistics Trucking Own and operate a fleet of vehicles for the aggregation of feedstock from a network of supply points throughout the South, East, Midwest and Western United States. Rail Vertex has an integrated rail system between business units to optimize logistic costs and just-in-time delivery for the companies refined and imported products as well as aggregation of refinery feedstocks. This expansive rail network provides a logistic advantage for all of Vertex s products. Ship/Barge/Water Logistics Vertex employs a water born logistics system for the management of large bulk product shipments and receivables. This strategy has become increasingly utilized, for example the commencement of the Vertex-Penthol venture. Vertex s supply chain is carefully managed with cargo shipments of base oil from a global refiner into the Stolthaven terminal in New Orleans coordinating with truck, rail, and barge deliveries to customers across North America. 12

13 Earnings Growth Focus Set-up for Success Focus on increasing our collection operations through both organic growth and strategic acquisitions, volume increased 19% during the LTM ended 9/30/18 vs. LTM ended 9/30/17. On track to collect over 30 million gallons at the end of Leverage the high-purity Base oil markets through the capital improvements and upgrades of technology made at our Heartland facility in 2017 as well as the future investment to be made at Myrtle Grove site. Focus on Low Sulfur Marine Fuels. Expand into additional refining capacity to include low sulfur crude oil. Started commercial trials at the CMT/TCEP facility to produce a fuel oil blendstock that would meet the new IMO s 2020 marine bunker fuel regulations; completed barge trial in Q Premium Base Oil Production Specialty refiner of high purity Group II+ base oils. Major importer of Group III base oil for commercial use in the United States. Advantageous Market Dynamics Strategic assets located in the gulf to capitalize on the new 2020 IMO fuel requirements for marine fuels to contain 0.5% or less Sulphur in ECA zone of <200 miles from coastline. Majority of Group III supplied to U.S. are imported from the Middle East and Asia representing an $0.25/gal transportation disadvantage. Group III base oil demand expected to increase in US by 50% over next 5 years due to full synthetic lubricant requirements for most new automobiles. Myrtle Grove Site Belle Chasse, Louisiana Industrial complex with existing processing plant infrastructure. Large storage volume capacity. Access to Mississippi River with sea-going barges, rail access and truck access nearby I-10. Myrtle Grove will produce high purity group III base oil and marine fuels, as well as utilizing site for bulk storage and finished product blending. We are working on our finished products strategy with multiple R&D projects underway. Raise private capital to invest and fully monetize the development of our Myrtle Grove, CMT/TCEP, and Heartland facilities. 13

14 VERTEX DIVISIONS

15 Black Oil The Black Oil Division refines used motor oil as an alternative feedstock to produce high purity base oils and marine fuels. Addressable Markets High purity Base Oils for Lubrication in North America Low Sulfur marine fuels for ocean going vessels in US Gulf Coast Specialty Refining Process used motor oil in-house using proprietary technologies: Marine Fuels produced 48.3 million gallons last 12 months Group II+ base oil produced 13.8 million gallons last 12 months TCEP technology did not produce finished product during last 12 months Feedstock Aggregation Purchase third-party feedstock from a network of approximately 50 supply points across the U.S. ~47.5 million gallons aggregated over the last 12 months Self Collections Own and operate a fleet of vehicles which collects used motor oil from a network of approximately 8,000 generators million gallons collected during the last 12 months Black Oil Q Revenue: $40.4MM (79.8% of Total) Q Gross Profit: $7.8 MM (19.4% Margin) 15

16 Refining & Marketing The Refining & Marketing Division refines clean crudes to marine fuels and petroleum co-products to chemical feedstock and specialty blend components. Source feedstock from commercial sources, including crude suppliers, products pipeline operators, petroleum terminals, refineries, chemical processing facilities, and third-party providers Development of crude refining assets for Marine Fuels Co-product processing completed with KMTEX, a third-party refinery. Co-product Refining Produces Various End Products: Gasoline Blendstock raw gasoline sold to blenders Pygas Feedstock used by chemical companies Fuel Oil Blendstocks used in blending industrial fuel for power generation Refining & Marketing Q Revenue: $7.3 MM (14.4% of Total) Q Gross Profit: $.27MM (3.7% Margin) 16

17 Vertex Trading & Recovery The Recovery Division provides recovery, trading, and marketing services for hydrocarbon and metal commodities. These services are currently provided in 13 states, primarily in the Gulf Coast and Midwest. In the last 12 months**, this division aggregated approximately 25,000 gross tons of steel and 680,000 barrels of petroleum products. North America Group III Base oil sales and distributions. Recovery Q Revenue: $2.9MM (5.8% of Total) Q Gross Profit: $(.08)MM (-2.7% Margin) **Last 12 Months ended 9/30/

18 FINANCIALS

19 Financials Revenue ($MM) $300 $225 $258.9 $150 $180.3 $162.0 $146.9 $145.5 $75 $98.0 $ *LTM Gross Profit ($MM) Total Volume (MMBbls) *LTM Adjusted EBITDA ($MM) $38 $30 $33.0 $23 $22.1 $15 $16.3 $16.3 $8 $11.9 $10.7 $ *LTM *LTM refers to Last 12 Months ending 9/30/18 $14 $9 $5 $0 -$5 -$9 -$14 -$18 -$23 $8.9 $11.1 $1.3 $5.9 $0.2 ($17.3) *LTM 19

20 Financials Cont d. Period ($ in millions except per share data) LTM Q Volume (Barrels) 1,728,071 2,854,757 2,784,363 2,167,375 2,466,397 2,436,989 YoY Change 20.4% 65% (2)% (22)% 14% (2)% Revenue $162MM $258.9MM $146.9MM $98.0MM $145.5MM $180.3MM YoY Change 20.4% 60% (43)% (33)% 48.4% 23.9% Gross Profit $16.3MM $11.9MM $10.7MM $16.3MM $22.1MM $33.0MM Gross Margin % 10.0% 4.6% 7.2% 16.6% 15.2% 18.3% Adjusted EBITDA $8.9MM $1.3MM $(17.3)MM $5.9MM $0.2MM $11.1MM Adjusted EPS $0.44 $0.05 $(.61) $.19 $.01 $.31 NOLs of ~$54.8MM **Last 12 Months, or LTM, refers to the 12 month period ended 9/30/2018 YOY Year of Year 20

21 Investment Highlights Focus on Improving profitability and growing free cash flow through operational and pricing discipline Gross Margin of 15.8% for Q3 2018, compared to 11.6% in Q Overall volumes of product sold which measures reach into the market decreased 2% for the 12 mos. ended 9/30/2018. Consolidated per barrel margin increased 100%, as a result of production improvements, continued focus on finished product value enhancement, and management of costs and spreads. Top-tier base of refining assets focused on two developing markets low sulfur marine fuels for IMO 2020 and high purity base oils for lubrication Marine fuel sales opportunity currently providing $.08+ per gallon improvement in 2018 Higher merchant spreads anticipated in 2019 with the IMO 2020 Bunker fuel regulations Heartland facility produces High Purity GII+ Base Oil with long-term strategic value opportunity Myrtle Grove refinery being developed to produce Group III base oil using its own proprietary technology Regional Refining model with business hubs located in key geographic areas Opportunity to optimize logistics, increase supply and capture logistics margin Allows for local expertise in each market, which leads to better customer/supplier relations Market leverage around pricing industry leaders in managing spread New base oil paradigm for refining high purity products from alternative UMO feedstock vs. conventional crude oil Significant yield advantage of high purity molecules Economic spread advantage Lower cost of feedstock Lower energy cost and lower carbon footprint 21

22 Management team Benjamin P. Cowart Chief Executive Officer, Chairman of the Board, Founder 32 years petroleum recovery industry, pioneering the reclamation industry by developing recycling options for many hydrocarbon residual materials once managed as hazardous wastes John Strickland Chief Operating Officer 30+ years management and marketing of fuels and petroleum blending operations Chris Carlson Chief Financial Officer 15 years financial management, energy, commodity, treasury and risk management Smith Howland Manager of Refining & Marketing 32 years processing, trading and marketing of petroleum and chemical products Mike Stieneker General Manager of H&H Oil Collections 20+ years management and operations of Used Oil Collections Alvaro Ruiz Executive Vice President of Corporate Development 20+ years in manufacturing and services industries Dave Peel Corporate Advisor Extensive leadership in operations, engineering, and expansive experience in industry and technical knowledge Erica Snedegar Manager of Base Oils and Intermediate Products 15+ Years of experience in selling and marketing refined petroleum products 22

23 APPENDIX INFORMATION ON USED MOTOR OIL REFINING AND SELF COLLECTION SERVICES

24 Used Motor Oil Refining Advantage Base Oil production from used motor oil (UMO) is more efficient than from crude oil. Less feedstock cost relative to crude oil purchase price Re-refining is a route to conserve and fully realize the valuable chemistry inherent to base oils The quality of the base oil through re-refining improves as a direct result of the feedstock cycle and the process technology deployed Refineries processing crude oil have alternative product markets with higher value economics in comparison to the yield loss from producing Group III base stock Lubricants 1.1% Fuels and Coproducts Water 5% Light Fuel 5% Heavy Fuel 4% VGO/ Lube Distillate 73% VERTEX Hydroprocessing Technology Asphalt Flux 13% Gallon of Crude Oil Gallon of UMO (1) (1) Percentage breakdowns are illustrative Source: Chemical Engineering Partners Group II+/III Base Oils 24

25 Used Motor Oil Recycling Industry General Overview The U.S. used motor oil recycling industry is approximately $2.4 - $2.8 billion. Of the approximately 1.3 billion gallons of used oil generated annually, less than 50% is re-refined while the rest is burned or disposed of improperly. Cheap natural gas creating need for more re-refinement and processors like Vertex: Used oil collectors historically sold to local industrial burners Industrial burners are switching to cheap natural gas, and collectors without infrastructure are now selling to re-refineries Market price for burning linked to cheap natural gas while price for re-refined oil is more closely linked to higher priced diesel As more of the 600 million gallons of burned oil is re-refined, the market size will increase considerably assuming the spread between diesel and natural gas holds % % 1.3 Billion Gallons of Used Oil 5% 25 % % Improperly Disposed Unrefined Recycled Fuel Re-refined into Lubricating Base Oils Re-refined into Intermediate Products * Midpoint of estimated ranges; gallons in millions Markets for Used Oil Burners Re-Refineries Vacuum Gas Oil Export High Value Fuel 25

26 Used Motor Oil Recycling Value Chain Generators Collectors Aggregators Processors End Users Jiffy Lube, car dealerships, etc. Collect used oil from generators Highly fragmented Purchase used oil from collectors Sell and deliver it as feedstock for processors Technology upgrades feedstock into higher value end products End product is used as an industrial fuel, ship fuel, base oil or refinery feedstock Vertical integration enables Vertex to control more of the value chain and capture higher margins. 26

27 Vertically Integrated Model Product Sales Processing & Handling Collection & Aggregation Our Process Vertex collects feedstocks and processes them into higher value products for end users. Vertically integrated across the value chain collecting a variety of feedstocks from the same customer. Vertex also acts as a broker of used oil to strategically control more used oil supply. USED MOTOR OIL USED ANTIFREEZE USED OIL FILTERS CHEMICAL & PETROLEUM CO-PRODUCTS Used Motor Oil Vertex Value-Added Processing: (Refining, TCEP, Materials Recovery, VGO Processing and Hydro Treating) Leverage Proprietary and off-the-shelf technologies Broker: Manage Logistics/Sales Product Value Marine Fuel Virgin Antifreeze Raw Metal Higher Value Feedstock Distillates, Gasoline & BlendStock Base Oil & Lubes Sold as-is to burners and refineries 27

28 Thank you