Process residuals, sludge with high oil content, were treated by composting. In lab-scale (100 litre) trials initial oil concentrations (30 to 50 g kg-1 dry matter) were, depending on composting conditions, reduced 55 to 90% during a period of 60 to 120 days. Besides carbon dioxide, a significant amount of oil was converted to stabilized residuals. A minor volatile fraction (5%) evaporated. High numbers (approximately 1 x 108 per gram dry compost) of oil degrading bacteria were detected during the high rate phases. Genetic fingerprinting (randomly amplified polymorphic DNA (RAPD) indicated groups of related and potentially interesting isolates from these periods. RAPD also indicated that successions of the microflora took place over time. Initial oil contents (40 to 80 g kg-1 dry compost) in outdoor pilot composts (15,000 to 20,000 kg), were reduced 86 to 94% in 10 months. Prolonged treatment (5 months) resulted in further decreases, in total a 95 to 97% reduction. In spite of increased biological activity, neither the addition of organic (manure) nor inorganic (nitrogen, phosphorus and potassium) nutrients increased the speed or amount of oil degraded during the prolonged treatment. Among potentially hazardous organics, elevated levels of polyaromatic hydrocarbons were found in the original oily sludge. Composting with adequate substrate reduced most of them. With proper considerations, composting is suggested as a cost and treatment-effective way of handling these sludges.