Essar Energy has taken a significant step towards becoming a global player in the energy market with the successful acquisition of the oil refinery and other associated assets at Stanlow, UK. The $350-million deal with Shell UK Limited for the country's second largest refinery is a decisive strategic move to gain access to massive UK oil and energy industry.
Speaking about the acquisition, Naresh Nayyar, Essar Energy’s chief executive, said, “We are very pleased to have completed the acquisition of Stanlow, which is a high-quality refinery and is an excellent fit with our refining strategy. It takes us substantially closer to our objective of a global refining capacity of one million barrels daily. We look forward to making some operational improvements which will optimize production at Stanlow.”
Money matters
According to the agreement, the consideration for the acquisition will be paid to Shell UK in two installments. The first installment of $175 million was made on completion of the deal, less an adjustment to reflect certain costs associated with the transfer of the refinery to Essar Oil UK Limited, an Essar Energy subsidiary.
The second installment, of $175 million plus interest at the rate of LIBOR plus 4 per cent, will be payable on the first anniversary of the completion of the acquisition deal.
Additionally, $916 million has been paid separately to Shell for the stock of crude oil, refined products and certain other inventory items on the Stanlow refinery site. This amount had been determined by the market prices of the items on completion of the acquisition and was at cost. The payment for this stock is being primarily funded from a working capital facility consisting of a three-year secured revolving credit facility for $1.5 billion.
Strategic advantage
Located near Ellesmere Port in north west England, the Stanlow refinery is the second largest in the UK. With has a nameplate capacity of 296,000 barrels of oil a day , it is responsible for about one sixth of the UK’s petrol supply. It is also a key manufacturer of diesel and aircraft fuel.
With this acquisition, Essar Energy now obtains direct access to the UK market. Additionally, the deal also extends options for the export of high-value fuel products from Essar's refinery at Vadinar, in Gujarat, India. The Vadinar refinery currently has a capacity of 300,000 barrels per day(bpd), which will increase to 375,000bpd under the first phase of the company's expansion plan (due to be completed by 2011 end). Phase 2 optimization plans entail a capacity expansion of 405,000bpd by September 2012, which would imply increased value addition to Essar Energy's UK presence.
The company will also explore synergies between Stanlow and Kenya Petroleum Refineries, in Mombasa, Kenya, that it acquired in 2009.
Into the fold
To commemorate the successful closing of the deal, Essar Group's leadership team from Mumbai and London visited Stanlow. Led by Rewant Ruia, Promoter Director, Essar Group, the team spent the day at the refinery, interacting with the staff and employees.
The day's activities began with breakfast with Stanlow's leadership team followed by a welcome address by Frank Willsdon, Site General Manager. Mr Ruia and Naresh Nayyar, CEO-Essar Energy, formally inaugurated the day's proceedings with a ribbon-cutting ceremony at the refinery’s newly branded reception.
The team then unveiled Essar’s brand monolith near the reception area, marking the Group’s growing presence in the UK.
To welcome every employee into the Essar fold, ‘Welcome to Essar’ cards and messages were placed on each desk and a special kiosk was set up for employees to collect their new identity cards, along with a thoughtful welcome hamper.
This activity presented the leadership team with a welcome opportunity to interact with the organisation's people and learn their sentiments about being part of the Essar family. In the interest of a closer interaction, the Essar team split into groups and, accompanied by Stanlow’s leadership team, visited employee floors and work stations. A gesture that was much appreciated by the refinery's staff and employees.
The final event for the day was a town hall meeting, where Mr Ruia welcomed the Stanlow staff and employees to Essar. During his address he touched upon Stanlow’s strategic significance for Essar’s global aspirations and the role he hoped it would play in penetrating the UK market. Mr Nayyar, Naren Vachharajani, CEO-Essar Oil India, and Adil Malia, Group President-HR, also addressed the audience and expanded on the combined synergies that were hoped for out of the new association.
The way forward
As the Essar Group expands its presence in international markets, the Stanlow acquisition marks an important milestone in its journey. The value of the acquisition will be largely dependent on the synergies that will come about with its integration with Essar's refining assets in India and Kenya. Towards this end, strategic teams are working closely to achieve implement operational improvements at Stanlow and share best practices across all three geographies.
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