AUGUST 2, 2011

By ALEXIS FLYNN

Essar Energy Monday completed a deal to buy the U.K’s second-biggest refinery at Stanlow, in Northwest England, from Royal Dutch Shell PLC, marking another step in a changing of the guard for the European refining sector as the fully integrated oil majors sell out to a new coterie of owners.

Essar Energy, a subsidiary of the giant Mumbai-based Essar conglomerate owned by Shashi and Ravi Ruia, paid Shell $350 million for what Essar Energy’s Chief Executive Naresh Nayyar says is a valuable, strategically positioned asset that gives the company an outlet to export surplus products made by its giant refinery at Vadinar in the Indian state of Gujurat.

The entry of one of India’s biggest independent energy companies into the U.K. comes at a time when many industry observers have concluded that the business of refining—essentially buying crude oil and boiling it until it separates into more valuable, easy-to-sell fuel products—is unlikely to improve in Europe for the foreseeable future. Margins are expected to remain under pressure as new capacity outpaces refined product demand, at least until 2015, said consultants KBC. In addition, owners face having to increase investment to comply with new emissions rules, with the first mandated reductions in CO2 emissions under the European Union Emissions Trading Scheme due to come into force from 2013.

In the face of these challenges, owners such as France’s Total SA, Shell and BP PLC have decided to reduce their European refining portfolios and instead invest in emerging markets and higher-margin areas. Their willingness to divest refining assets and a shortage of willing buyers has pushed prices down, attracting interest from a diverse range of buyers, including new emerging-market refinery owners like Essar looking to gain a foothold into the European market, sovereign wealth funds, traders, private-equity and fuel-marketing companies.

These putative new owners are diverse, with different buyers interested in those assets that best suit their type of business. PetroChina Co. bought into refineries in Grangemouth, Scotland and Lavera, France, via a joint venture with Swiss chemical manufacturer Ineos. Abu Dhabi sovereign wealth fund International Petroleum Investment Company, or IPIC, bought a controlling stake in Spain’s CEPSA from Total for around €4 billion ($5.76 billion) in a deal that also included marketing and some production assets.

Commodity traders Trafigura and Vitol, which in 2009 bought some refining assets from Petroplus in Antwerp, are also on the hunt for smaller refining assets that can be used as storage facilities, according to a report by KBC.

Mr. Nayyar said Essar plans to invest $100 million a year in Stanlow over the next four years, money which will be used not only for necessary upgrades to meet environmental standards but also to increase throughput and allow it to process heavier crudes, thus helping to improve profit margins. Essar says burgeoning U.K demand for diesel, which has risen 38% since 1998 according to industry body UKPIA, will soon justify the decision.

This willingness to invest amid difficult market conditions is also explained in large part by the fact Essar is operating from a position of relative strength. With its Vadinar refinery already about to ramp up throughput to 400,000 barrels a day of higher margin products, Stanlow provides “optionality” for Essar, Mr. Nayyar says, explaining that Essar intends to use the refinery’s storage capability and market access to good export effect.

Stephen Brooks, a fuel analyst at consultancy Wood Mackenzie, says this a trend that is likely to continue. “As the oil demand profile changes, not only in Europe but elsewhere, particularly as some of these new large-scale refineries come onstream in the Middle East and Asia [refinery owners] are looking for markets to sell their products and as fuel specifications change, so I think the demand for oil storage will increase.” However, he cautions that Essar’s acquisition of Stanlow shouldn’t necessarily portend a wave of similar deals. Several of Europe’s larger refineries are still for sale.

Last week Total’s Chief Financial Officer Patrick de la Chevardière described the challenge of attracting buyers prepared to meet the firm’s valuation for its Lindsey refinery, Britain’s third-largest, in the present climate. “It is extremely difficult to sell a refinery today,” said Mr. de la Chevardière.

“You have to look at each facility on its merits,” says Mr. Brooks, explaining that what made Stanlow an attractive buy for Essar wouldn’t necessarily translate to other refineries. “Obviously, you can’t ignore the market environment, which has been adverse for refiners in general, that’s an underlying feature affecting the value of these assets.”

WSJ LIVE ARTICLE

EMAIL RECEIVED BY JOHN DONOVAN

John,

After 82 years Sunday 31st July is the last day of Shell’s ownership of Stanlow.

Can I thank you for all the help, and publicity, you have given us over the last few years. We are looking forward to becoming part of Essar and are not sorry to see Shell go.

Keep up the good work.

Regards

ENDS

Royal Dutch Shell has continued recruiting despite laying off up to 7,000 staff in the past few years as it continuously “reprofiles” its talent mix, its HR chief HR has said.

Hugh Mitchell (right), Shell’s chief HR and corporate officer, told the Economist’s Talent Management Summit yesterday that as demand for energy increases worldwide, employers in the sector face a “phenomenal” skills challenge.

“We need people who are smarter than the people we recruited before,” Mitchell concluded.

SOURCE ARTICLE

RELATED ARTICLE (ABOUT HUGH MITCHELL)

Shell Stanlow workers offered for sale like slaves in public auction

Leaked Shell Emails Discuss Despicable Treatment of Stanlow Refinery Workforce

Leaked email Royal Dutch Shell Exec Peter Voser sent at 10am today..

Joint Statement from Shell, Essar and the Employee Representatives from the consultation meeting held 14^th March 2011

Shell and Essar management have today formally met for the second time to consult with the employee representatives for Stanlow refinery and the associated marketing businesses.

This has included sessions with both non-unionised and unionised representatives on general terms and conditions (as outlined at the first meeting) plus a joint session on pensions.

In response to concerns raised on pensions, Essar recognised the value that Stanlow employees attach to the pension provision and have revised their defined benefit pension proposals.  These now provide for the replication of the Shell pension benefits in the Essar pension plan, so that existing staff will retain their current pension benefits.

Essar also confirmed that the terms and conditions package offered to employees including employee benefits will remain unchanged for a minimum period of 2 years.

Shell said that as a result of the significantly improved pension proposal, the discretionary 4 months transition bonus proposal would now be taken off the table, and reviewed by Shell.

Unite and the non union representatives made a joint response. They welcome the commitment to the final salary pension scheme that provides mirror image benefits to the Shell schemes with no detriment to the existing members of the pension scheme.  However, both groups have requested that Shell/Essar continue to provide a final salary pension scheme for all employees, including new starters. They have also requested that consideration is given to the following:–

• A 50/50 split on the pension trustee board with an independent chair.  Essar confirmed their willingness to provide a 50/50 split and that one of the trustees would be independent;
• Ill health benefit protection for deferred pensioners.  Essar agreed to discuss this point with Shell and revert
• That the status quo of pension provision at Shell Stanlow remains as is, without the introduction of a defined contribution scheme. Essar agreed in response to remove the defined contribution proposal as an option for existing employees but that it would be retained for new starters.

It is the intention of the Unionised group to hold a general meeting on Tuesday 22^nd March at 6pm in the canteen to give feedback on these proposals.

Essar and Shell also confirmed that they would formally respond on all other key questions and points of feedback raised at the sessions.  This will be done as soon as possible to enable the employee representatives to provide full feedback to their constituents.

In the meantime, individual questions can be raised either through the employee representatives, or via the Q&A facility on the Strategic Review website.

S Kalyana Ramanathan / London March 5, 2011, 0:34 IST

Essar Energy’s $350-million deal to buy Shell UK’s oil refinery and associated assets at Stanlow, near Ellesmere Port, Cheshire, has hit a road block. The employee union has rejected the deal in its current form due to differences over pension payout and other issues.

Union members who spoke to Business Standard after the first round of consultation on March 1 said that while they were keen to become part of the Essar Group, they would not allow Shell to wash its hands off certain agreements it had entered into with the employees.

A statement from Unite, the union, said it had lodged a complaint with Shell on behalf of all three bargaining units — operators, maintenance technicians and production team leaders/station duty officers. The group comprises around 600 employees at Stanlow out of nearly 1,000 workers. The union said it was keen to continue group negotiations for annual benefits and salary increases while Essar was keen to introduce its policy of individual appraisals.

Unite said, “Shell made a promise to our members, on joining the company, that they would enjoy the benefit of a final salary pension scheme when they retire. We cannot allow Shell to walk away from its obligations to the loyal staff.”

Ron Wood, the branch secretary of Unite in Stanlow and a Shell employee, said, “We work as a team and we should be appraised (annually) as a team and not individuals.”

Essar, however, dismissed this as a minor glitch and said it was at a very early stage of talks with the union.

A spokesman for Essar Energy in London said, “Following the signing of an exclusivity agreement with Shell, we have entered into the standard consultation exercise with employees at the site prior to signing the asset purchase agreement. The consultations are underway and both Essar and Shell are engaging with the staff at Stanlow. The discussions are progressing well, and we remain confident all issues can be resolved. But, we cannot comment on the outcome until the process has been completed.”

A Shell spokesperson here said,“Staff consultation continues,” and refused to comment further on the differences with the union.

Under UK’s laws, consultation with employees is mandatory before a takeover can be completed. However, the approval of the unions is not a pre-condition for the deal to go through. Sources involved in the deal say differences over pension and annual employee appraisal cannot legally derail an acquisition.

The deal, if approved by the unions and the regulatory authorities in the UK, will be the third largest by an Indian group in the UK after Tata’s acquisition of Corus ($8.1 billion in 2006) and Jaguar Land Rover ($2.3 billion in 2008).

Successful conclusion, even at the current capacity utilisation of around 75 per cent, should bring in an additional $7-8 billion revenue to Essar every year, at current crude prices.

The agreement between Shell and Essar is valid till the end of this month. If by March 31, Essar Energy decides not to proceed with the acquisition, it has agreed to pay Shell a break fee of $50 million. Similarly, Shell has agreed to pay Essar a break fee of $10 million if it chooses not to go ahead with the sale.

Essar will take on board 960 workers at the refinery. In the first six months of 2010, the Stanlow Refinery reported earnings before interest, tax, depreciation and goodwill amortisation (EBITDA) of $62.7 million and a gross refining margin of $4.90 a barrel. Average industry benchmark gross refining margins were $2.73 per barrel in the first half of 2010.

SOURCE ARTICLE

Out of the frying pan and into the fire… to go from a situation that is bad, to one that is even worse…

By John Donovan

Representatives of the Unite union had a meeting on 1 March with Shell and Essar to discuss the proposed employee transfer arrangements arising from Shell’s pending sale of the Stanlow Refinery to Essar Oil.

Unite was appalled at the proposed plans and is accusing Shell of reneging on its final salary pension scheme promise to employees when they joined the company.

The union says:

“We cannot allow Shell to walk away from their obligations to their loyal staff”.

Workers also have deep concerns over Essar’s alleged ruthless track record in the treatment of employees arising from Essar acquisitions in North America.

There is also some obvious anxiety over the news earlier today that Prashant Ruia, the CEO of Essar Group, has been interrogated by detectives from the Indian Central Bureau of Investigation in relation to a £24billion corruption case.

More information can be found at http://www.stanlow.org/

21 Feb, 2011, 06.35AM IST, Pradeep Pandey,ET Bureau

MUMBAI: Essar Energy will provide a bank guarantee of $1 billion to close the offer it made to acquire Shell’s Stanlow refinery in the UK, according to a person who is part of ongoing negotiations with banks. This bank guarantee would be over and above the $350 million that Essar Energy agreed to offer for the assets of Stanlow refinery.

“The company (Essar) will finalise the bankers who will furnish the guarantee in the next three to four months,” said the person who requested anonymity as the transaction is still underway.

Typically, the purchase price of a functional refinery consists of the asset cost plus an amount for working capital which includes inventory. The value of the inventory, in the case of a refinery, is determined at the close of the deal to reflect the latest price of crude.

On February 18, Essar Energy made the offer to buy Shell’s 272,000 barrel-a-day refinery and the associated local marketing businesses for a total expected consideration of about $1.3 billion. Essar Energy’s deal value of $1.13 billion includes $780 million for the inventory with the UK refinery. Shell agreed in principle to the offer made by Essar Energy and has granted exclusivity to the offer until April 1, 2011.

“Crude and processed products have to be valued on the completion of the acquisition, based on prevailing market prices. As of now it has been estimated to be around $780 million,” said an Essar spokesman.

Under the terms of the asset purchase agreement, Essar will make the payment in two stages: $175 million payable on completion of the acquisition and a deferred payment of $175 million plus interest after a year of acquisition. In addition, Essar will have to make a separate payment for the crude oil, refined products other inventory with Stanlow.

Essar Oil UK and Shell will enter into agreements where Essar will buy crude and feedstock exclusively from Shell for a five-year period at spot prices for Stanlow refinery, and Shell will buy refined products for its retail and other businesses from Stanlow for durations of up to 10 years.

SOURCE ARTICLE

RELATED: Essar to buy Shell’s Stanlow refinery for $35…

FT.com

By David Blair in London and Tom Burgis in Mumbai: Published: February 19 2011 01:30

Essar Energy has taken a significant step towards buying Shell’s refinery at Stanlow, on the south bank of the Manchester Ship Canal near Ellesmere Port in Cheshire.

Essar has until March 31 to confirm that it wants to buy Stanlow. If it decides not to proceed, it will be liable for a break fee of $50m. If Essar decides to go ahead, Shell will have three days to decide whether to accept – and it will be liable for a $10m fee if it turns down the offer.

FULL ARTICLE

Petrol from India is likely to find its way into the UK market for the first time, after Essar Energy bought Royal Dutch Shell’s Cheshire oil refinery for $350m (£216m).

Essar may pump Indian fuel into UK Photo: ALAMY

By Rowena Mason 7:15AM GMT 19 Feb 2011

As one Stanlow insider put it…

“John, Looks like we have been sold by the cowboys to the Indians.”

Shell receives offer for Stanlow refinery in the UK

18/02/2011

Shell today confirmed it has received an offer from Essar Energy to buy its 272,000 barrel-per-day Stanlow refinery and associated local marketing businesses in the UK for a total expected consideration of some $1.3 billion.

Enquiries

Notes to editors

In 2009 Shell confirmed that it was talking to third parties about the potential sale of Stanlow Refinery and associated local marketing businesses.

The offer from Essar covers Oil Products and Chemicals Manufacturing and distribution terminal assets, plus the Commercial Fuels Bulk Fuels and local Marine fuels businesses associated with the Stanlow refinery, but does not include any of Shell’s UK Retail sites, the Shell higher olefins plant and alcohols units, the lubricant oils blending plant, lubricants marketing business, Shell aviation operations at airports, non-local marine business, marine lubricants, commercial road transport marketing businesses, bitumen marketing business or Shell technology centre Thornton.

In the UK, Shell has a network of more than 900 branded retail sites, and supplies and distributes oil products to a range of airport, Lubricants, Marine and Bitumen customers. The company also has upstream operations in the UK sector of the North Sea and 3 onshore gas plants.

SOURCE SHELL WEBPAGE