In recent years, there has been an unusually large number of reported cases associated with varnish and sludge formation in turbine-generator and compressor applications using Group II turbine oil formulations. Explanations for these problems have varied but typically include Group I/Group II incompatibility, additive instability, bulk oil oxidation, adiabatic compressive heating, electrostatic discharge, among others. This paper reviews these failure pathways and discusses actual case history including root cause analysis. Analytical methods for the sludge/varnish and the degraded oil are also reviewed.