Essar in talks to buy 3 Shell refineries

Essar Oil is in talks with Royal Dutch Shell to buy two of its refineries in Germany and one in the UK.

Both companies confirmed the exclusive negotiations on the sale of the Heide and Harburg refineries in Germany and the Stanlow plant in the UK. The refining capacity of these refineries is pegged at 500,000 barrels per day.

“Shell can confirm today that we are in negotiations with Essar for the potential sale of Stanlow, Heide and Harburg refineries. For the time being Shell will not be holding discussions with any third party other than Essar,” Shell’s spokesperson told Business Standard from London.

Shell, however, added that the negotiations do not guarantee a sale and it is too early for Shell to confirm a deal or comment on timescales.

Shell is reviewing the future of its refineries worldwide as it seeks to reduce costs and cut spending after the global recession curbed demand for fuels and dragged down prices. Declining profit margins have prompted refiners to idle plants, seek the sale of others and slow operating rates. The company plans to sell about 15 per cent of its global refining capacity, or about 600,000 barrels a day of capacity, in the next three years as part of its restructuring programme aimed at increasing profitability and efficiency. It agreed in September to sell its fuel and lubricant businesses in Greece.

“The scope of the current review includes oil products and chemicals manufacturing and distribution terminal, plus the commercial fuels, bulk fuels and local marine fuels businesses,” Shell said in a media statement.

The review however, does not include any of the UK retail sites, the lubricant oils blending plant, lubricants marketing business and its aviation operations at airports.

Confirming the talks, an Essar spokesperson said, it was too premature to comment any further on the matter.

Essar Oil operates a 2,80,000 barrel per day (bpd) refinery at Vadinar in Gujarat. This refinery capacity is being expanded to 3,20,000 bpd by 2010 and then to 7,00,000 bpd by 2011. The company plans to achieve a daily refining capacity of 1 million barrels through organic and inorganic growth.

In July this year, Essar Energy Overseas, a subsidiary of Essar Oil, acquired 50 per cent stake in a four million tonne oil refinery in Mombasa, Kenya. The company is expected to invest $350 million to $450 million for upgrading the refinery.

RIL, India's largest company by market capitalisation, commissioned its 580,000 bpd refinery in Jamnagar, Gujarat last December. RIL already has an older 660,000 bpd refinery adjacent to this facility. The company in its second quarter results yesterday announced that its twin refineries operated at nearly 90 per cent of the capacity and processed 27.63 million tonnes of crude compared to 16.34 million tonnes a year ago.