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Essar Energy's UK Refining Operation Benefits From Strong Margins

Date : 11/26/2012 @ 8:42PM
Source : Dow Jones News
Stock : Deutsche Bank AG NA O.N. (DBK)
Quote : 12.0  0.045 (0.38%) @ 9:00PM
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Essar Energy's UK Refining Operation Benefits From Strong Margins

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By Ben Winkley

London-listed Essar Energy PLC (ESSR.LN) said Monday that performance at its Stanlow refinery has markedly improved since it took over the northwest England plant last year, as it benefited from improved margins.

In its group interim report, Essar said its U.K. refining and marketing operation recorded earnings before interest, taxation, depreciation and amortization of $197.2 million in the six months to Sept. 30, compared with $22.2 million in the first eight months of ownership to March 31.

Gross refining margins were $8.03 a barrel in the period, compared with $3.1 a barrel in the first eight months of ownership, Essar said.

The company has an objective of adding over $3 a barrel to refining margins at Stanlow within the next two years, and said Monday it's already approaching an increment of $1 a barrel toward that.

Essar is now processing 11 crude grades at Stanlow, enabling it to take advantage of lower cost opportunities, and it said a new natural-gas supply, to fuel the plant's boilers, will allow more flexibility in the choice of crude oils it processes.

Europe's refining industry has endured a fraught time since the start of the economic crisis in 2008, since then around 10 refineries have closed or sharply reduced output as profit margins weakened amid lower demand for products and higher prices for both crude and credit.

Although margins have been boosted this year in part as maintenance took out a large proportion of Europe's production capacity in the spring and autumn, Deutsche Bank, in a recent note to clients, said it expects a softer margin environment ahead unless more of the "surplus" capacity is removed from the market.

Most recent data from Euroilstock showed that product stocks in the EU-15 & Norway region stood at a five-month high at the end of October.

Essar bought the 296,000-barrel-a-day Stanlow refinery from Royal Dutch Shell PLC (RDSB) for $350 million. More than $800 million in capital was needed to cover the cost of crude and refined products stored at the plant. In July, Essar struck an agreement with Barclays PLC (BARC.LN) that saw the U.K. bank agree to buy the inventories of crude and products at Stanlow, and to supply crude to the refinery in line with its requirements, to enable Essar's U.K. unit to repay a revolving credit facility provided by 13 banks.

(Konstantin Rozhnov contributed to this item)

Write to Ben Winkley at ben.winkley@dowjones.com

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