Royal Dutch Shell is in advanced talks to acquire a 10% stake in Essar Oil as part-payment for selling three of its European refineries to the Indian company , persons aware of the plan said.
At current market prices, the stake will be worth around Rs 1,700 crore ($364 million) and account for a little less than half the estimated $800-million value of the refineries. In addition, Essar is looking to raise a loan of around $1.5 billion to fund the working capital needs of the refineries , two of which are in Germany and one in the UK.
Shell and Essar Oil, India’s second-largest private refiner, are in exclusive talks until the end of this month. Any deal between the two will involve the sale of some of the local marketing operations but not the retail business. Both companies said they did not want to comment on the details of the negotiations, including timelines.
The German units have an aggregate capacity of around 200,000 barrels a day while the UK refinery’s capacity is 272,000 barrels.
Shell has said it plans to sell around 15% of its global refining capacity, or around 6,00,000 barrels a day, as part of a restructuring exercise. Tight margins and falling fuel demand have prompted many big oil companies to offload European and US refineries . Refining profitability, in particular, has taken a knock in the global downturn and the outlook remains weak despite signs of an economic recovery.
Essar Oil operates a 2,70,000-barrel-per-day refinery at Vadinar in Gujarat. The capacity will rise to 3,85,000 barrels once the expansion of up to 16 million tonne is done, likely by 2010. Essar Energy Overseas, an offshoot of Essar Oil, had in July purchased 50% from Shell, BP and Chevron in the Mombasa-based Kenya Petroleum Refineries. The rest of the stake in the refinery, which has a capacity of 80,000 bpd, is held by the Kenyan government.
Essar Oil is looking to have 1 million bpd in capacity through organic as well as inorganic growth by 2012.
Source: Economic Times