The oil producing and petroleum refining industries dispose of a significant amount of oily sludge annually. The sludge typically contains a mixture of oil, water and solid particles in the form of complex slurry. The oil in the waste sludge is inextractible due to the complex composition and complex interactions in the sludge matrix. The sludge is disposed of on land or into surface water bodies thereby creating toxic conditions or depleting oxygen required by aquatic animals. In this study, a fumed silica mixture with hydrocarbons was used to facilitate stable emulsion (‘Pickering’ emulsion) of the oily sludge. The second step of controlled demulsification and separation of oil and sludge into layers was achieved using either a commercial surfactant (sodium dodecyl sulphate (SDS)) or a cost-effective biosurfactant from living organisms. The demulsification and separation of the oil layer using the commercial surfactant SDS was achieved within 4 hours after stopping mixing, which was much faster than the 10 days required to destabilise the emulsion using crude biosurfactants produced by a consortium of petrochemical tolerant bacteria. The recovery rate with bacteria could be improved by using a more purified biosurfactant without the cells.