Essar unit still in talks to buy Shell UK refinery

Essar Energy Plc is in advanced talks to buy Royal Dutch Shell’s Stanlow refinery in the UK, a move that will help the London-listed company boost its refining capacity globally.

Ruias-controlled Essar Oil is expected to make a formal announcement of the two companies being in exclusive talks by the end of this month, though the completion of the deal could take another two months, two company officials told DNA.

Essar will finance the deal — valued at $350-400 million — from the proceeds of the $500 million convertible bonds issue made in January this year and also from $1.95 billion raised from the listing of Essar Energy on the London Stock Exchange in May 2010.

Essar does not have any banker financing the deal, while Lazard undertook the auctioning process for Shell.

“Essar can confirm that it is still in talks with Shell for the purchase of its Stanlow refinery and associated marketing businesses. Talks are progressing but we cannot comment on details or timelines,” a company spokesperson said.

A spokesperson for Shell said it “remains in discussions” but did not give further details.

Essar Oil buying Stanlow — Shell’s only UK refinery — would help the company ramp up its refinery expansion from the current 380,000 barrels a day to 676,000 barrels a day.

Stanlow refinery employs nearly 1,000 people and 800 contractors and has a capacity of 296,000 barrels a day, producing about a sixth of the UK’s petrol.

The disposals by Shell are part of a strategy to rid itself of smaller refineries in favour of investing in large, integrated complexes.    

According to one executive DNA spoke to, Shell has been keeping the sale of refinery a low-key affair as refinery sales get controversial because of the potential of large job losses.

Earlier in July 2009, Essar acquired a 50% stake in Mombasa-based Kenya Petroleum Refineries, which has a capacity of 80,000 barrels a day. The balance stake is held by the state government.

Essar is keen to buy Stanlow, as it gives the company an important gateway to the northwest and north of England for its products.

“A nearby shipping terminal would be able to handle the importation of crude oil refined at our Vadinar refinery (Gujarat),” said an executive.

“The nearby Manchester Ship Canal could also offer an ideal entry point for us to export refined oils and other raw materials into the region.”