Essar Oil turns around loss-making Stanlow refinery

Nearly five-years after acquiring the strategic Stanlow refinery from Shell, Essar Oil UK has turned around the loss-making unit with a record net profit of $187 million in 2015-16, as it optimised processes, diversified crude basket and invested in margin improvement programmes.

Essar Oil UK, controlled by Mumbai-based Ruia family, reported the highest ever earnings before interest, tax, depreciation and amortisation (Ebitda) of $340 million in FY16, against $177 million in the previous financial year.

“Ebitda was negative $17 million in FY12 ,” said Naresh Nayyar, executive chairman, Essar Oil UK. “Net profit in FY16 is about $187 million, compared with $70 million in the previous financial year.”

Currently, Stanlow produces about 16 per cent of UK’s transport fuels, serving north-west part of UK.    

Essar, the only Indian firm to own and operate a refinery in Europe, has also entered into auto fuel retailing in the UK, opening seven petrol stations and plans to raise the number to 400 in three years to capture 10 per cent of market, he said.

Stanlow, which operated at a third of its stated capacity of 210,000 barrels per day in July 2011 when Essar bought the unit from Shell for $350 million, clocked near 200,000 bpd crude run in FY16.

"We have basically optimised refinery configuration to deliver better yields," he said, adding that higher margin yielding petrol and diesel production has been increased.

Also, the refinery is processing 25 new crude oils that give price and yield advantage instead of Shell's policy of relying only on North Sea grades that did not offer better economics all the time.

"There has been a margin improvement of USD 3 per barrel since acquisition," Nayyar said, adding that natural gas is being used as fuel to run the refinery, low margin lubes unit has been shut, crude slate diversified and margin improvement projects have been taken up.

Stanlow earned USD 8.7 on turning every barrel of crude oil into fuel in 2015-16, USD 3 more than the North West Europe benchmark Current Price (CP) Gross Refining Margin (GRM).