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Essar Oil Gains After Bidding for Shell Refineries

By Rakteem Katakey

Aug. 18 (Bloomberg) — Essar Oil Ltd. gained in Mumbai trading on speculation its bid to acquire the U.K.’s second- largest refinery from Royal Dutch Shell Plc would enable the company to boost earnings by selling fuels in Europe.

India’s second-largest non-state refiner advanced 3.3 percent to 134.20 rupees at 12:08 p.m. local time. The stock has gained 55 percent this year compared with a 56 percent increase in the Bombay Stock Exchange’s Sensitive Index.

Essar Oil bid for the Stanlow plant in England to add capacity in Europe and gain access to markets and pipelines, a person familiar with the matter said, declining to be identified because the information is confidential. Shell also received bids from the Indian company for its two German refineries in Hamburg and Heide, the Financial Times reported, without citing anyone.

“They are probably looking to get entry into marketing of fuels in Europe considering the company is expanding its capacity in India,” said Niraj Mansingka, an analyst with Edelweiss Capital Ltd. in Mumbai.

Essar Oil operates a 10.5 million-ton-a-year refinery in the west Indian state of Gujarat and plans to spend $1.56 billion to expand annual capacity to 16 million tons by December 2010, according to a Web site presentation. The Mumbai-based company will increase capacity to 34 million tons in a second phase, spending an additional $4.44 billion. It bought a 50 percent stake in Kenya Petroleum Refineries Ltd. last month.

Shell Refineries

Building a refinery and distribution network in Europe would be too expensive for Essar Oil, the person familiar with the Stanlow bid said.

Essar Oil Managing Director Naresh Nayyar didn’t answer telephone calls.

Shell, Europe’s largest oil producer, said yesterday that several companies expressed interest in buying the refineries. Shell is also looking to sell the Heide and Hamburg refineries in Germany as well as Canada’s Montreal East and New Zealand’s Whangarei plants.

Shell said earlier this month it may sell Stanlow to reduce costs and cut spending. Declining profit margins have prompted refiners to temporarily close plants, seek the sale of others and slow operating rates.

A sale of the 233,000 barrel-a-day Stanlow facility would come on top of Shell’s announced 8 percent reduction in refining capacity. Shell is reviewing plans to sell assets totaling about 330,000 barrels a day of capacity this year and next, Chief Executive Officer Peter Voser said July 30.

Refining Margins

Global refining margins, or the profit from turning crude into fuels such as gasoline and diesel, fell about 40 percent in the second quarter from a year earlier, according to smaller competitor BP Plc.

“The review of the refineries takes time and a sale may happen later this year,” Rainer Winzenried, a Shell spokesman based in The Hague, said by telephone yesterday.

Shell’s planned divestitures follow its sale of U.S. refineries in recent years. The company sold its Bakersfield, California, refinery in 2005 after the state blocked an attempt to close the plant, and its Los Angeles plant two years later.

Stanlow produces mainly gasoline and doesn’t have a hydrocracker, which converts heavy crude into lighter fuels.

Exxon Mobil Corp.’s Fawley plant is the U.K.’s largest refinery.

To contact the reporter on this story: Rakteem Katakey in New Delhi at [email protected].

Last Updated: August 18, 2009 02:56 EDT

Bloomberg Article

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