BASIS OF PRESENTATION AND NATURE OF OPERATIONS

6 Months Ended

Jun. 30, 2024

Organization, Consolidation and Presentation of Financial Statements [Abstract]

BASIS OF PRESENTATION AND NATURE OF OPERATIONS

BASIS OF PRESENTATION AND NATURE OF OPERATIONS

Vertex Energy, Inc. (the "Company" or "Vertex Energy") is an energy transition company focused on the production and distribution of conventional and alternative fuels.

The Company owns and operates a conventional fuels refinery in Mobile, Alabama (the "Mobile Refinery") with an operable refining capacity of 75,000 barrels per day ("bpd") and more than 3.2 million barrels of storage capacity. Concurrent with the acquisition of the Mobile Refinery on April 1, 2022, the Company entered into an inventory financing agreement. For further details, refer to Note 10 “Inventory Financing Agreements”. Additionally, the Company operates used motor oil processing and re-refining facilities in Baytown, Texas; Marrero, Louisiana; and Myrtle Grove, Louisiana. The Company is headquartered in Houston, Texas.

The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission ("SEC") and should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2023, contained in the Company's annual report, as filed with the SEC on Form 10-K on March 7, 2024 (the "Form 10-K").

In the opinion of management, all adjustments, consisting of normal recurring adjustments necessary for a fair presentation of financial position and the results of operations for the interim periods presented, have been reflected herein. All significant intercompany transactions have been eliminated in consolidation. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the consolidated financial statements which would substantially duplicate the disclosures contained in the audited consolidated financial statements for the most recent fiscal year 2023 as reported in Form 10-K have been omitted.

Refining and Marketing

Effective April 1, 2022, we completed the acquisition of a 75,000 bpd crude oil refinery ten miles north of Mobile, in Saraland, Alabama (the “Mobile Refinery”) and related logistics assets, which include a deep-water draft, bulk loading terminal facility with 3.2 million barrels (bbls) of storage capacity for crude oil and associated refined petroleum products located in Mobile, Alabama (the “Blakeley Island Terminal”). The terminal includes a dock for loading and unloading vessels with a pipeline tie-in, as well as the related logistics infrastructure of a high-capacity truck rack with 3-4 loading heads per truck, each rated at 600 gallons per minute (the “Mobile Truck Rack”). The Mobile Refinery currently processes light sweet crude to produce regular gasoline, premium gasoline, jet fuel, diesel fuel and vacuum gas oil.

Beginning in the second quarter of 2022, we began a conversion project designed to modify the Mobile Refinery's hydrocracking unit to produce renewable diesel fuel on a standalone basis. The renewable diesel unit was commissioned on April 28, 2023, and on May 27, 2023, the Mobile Refinery began processing soybean oil into renewable diesel and achieved the Phase I installed capacity target of 8,000 barrels per day as anticipated. The Company closed out Phase I of the renewable diesel (RD) project as of June 30, 2023, which was funded entirely through existing cash on-hand and cash flow from operations. Beginning in the second quarter of 2023, the Company started Phase 2 of the RD project. Due to the significant macroeconomic headwinds over the past 12 months, many of which we believe will continue to occur over the next 18 to 36 months, we have decided to strategically pause our renewable diesel business and pivot to producing conventional fuels from the hydrocracker unit. During the second quarter of 2024, the Company completed running all renewable feedstock and began optimizing the Mobile Refinery hydrocracker capacity from renewable diesel to conventional fuels with expected contribution from conventional fuel operations to be generated in the fourth quarter of 2024.

Additionally, Vertex Energy aggregates used motor oil, petroleum distillates, transmix and other off-specification chemical products. These feedstock streams are purchased from pipeline operators, refineries, chemical processing facilities and third-party providers. The Company has a toll-based processing agreement in place with Monument Chemical Port Arthur, LLC (“Monument Chemical”) to re-refine these feedstock streams, under the Company’s direction, into various end products. Monument Chemical uses industry standard processing technologies to re-refine the feedstock into pygas, gasoline blendstock and marine fuel cutterstock. The Company sells the re-refined products directly to end customers or to processing facilities for

further refinement. In addition, we are distributing refined motor fuels such as gasoline, blended gasoline products and diesel used as engine fuels, to third party customers who typically resell these products to retailers and end consumers.

Black Oil and Recovery

Through its Black Oil segment, which has been operational since 2001, Vertex Energy aggregates and sells used motor oil. The Company has a network of approximately 30 suppliers that collect used oil from businesses such as oil change service stations, automotive repair shops, manufacturing facilities, petroleum refineries, and petrochemical manufacturing operations. The Company procures the used oil from collectors and manages the logistics of transport, storage and delivery to its customers. Typically, the used oil is sold in bulk to ensure the efficient delivery by truck, rail, or barge. In many cases, there are contractual procurement and sale agreements with the suppliers and customers, respectively. The Company believes these contracts are beneficial to all parties involved because they help ensure a minimum volume is procured from collectors, a minimum volume is sold to the customers. Additionally, these contracts offer the potential benefit of reduced inventory risk through a spread between the costs to acquire used oil and the revenues received from the sale and delivery of used oil. The Company operates its own re-refining operations at the Cedar Marine Terminal, in Baytown, Texas, which houses the Company's proprietary Thermal Chemical Extraction Process (“TCEP”) technology designed to re-refine used oil into marine fuel cutterstock (when such use makes economic sense) and a higher-value feedstock for further processing. The finished product can then be sold by barge as a fuel oil cutterstock and a feedstock component for major refineries. Through the operations at our Marrero, Louisiana facility, we produce a Vacuum Gas Oil (VGO) product from used oil re-refining which is then sold via barge to end users to utilize in a refining process or a fuel oil blend.

Discontinued operations of Vertex include our Heartland Assets and Operations. Refer to Note 22, "Discontinued Operations" for additional information.

Through its Recovery segment, Vertex Energy aggregates and sells ferrous and non-ferrous recyclable metal products that are recovered from manufacturing and consumption.

Use of Estimates

The preparation of financial statements conforming with generally accepted accounting principles in the United States (“GAAP”) requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and reported amounts of revenue and expenses. Actual results could differ from these estimates. Any effects on the business, financial position or results of operations from revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known.