Essar Energy will buy Royal Dutch Shell's Stanlow Refinery for USD 350 million. But the full deal size stands at over USD 1 billion. That's because Essar Energy will pay an additional USD 780 million to pick up the refinery's assets. CNBC-TV18's Sajeet Manghat reports with more on what this deal will mean for Essar Energy.
The exclusivity period of the deal is until April 1, 2011, and if the deal doesn’t proceed by then, Essar would have to pay USD 50 million as break fee and if Shell backs out, the former would get USD 50 million.Shell will start talks with the staff at Stanlow before the deal is signed. Stanlow EBITDA for the first half of calendar year 2010 stood at USD 62.7 million and GRM came in at USD 4.9 per barrel.
Commenting on the deal, Essar Energy CEO Naresh Nayyar said this will enhance our earnings with the first year of buy. “Stanlow is a quality, complex refinery, the UK's second biggest, which can produce clean, ‘green’ petrol and diesel now required in UK and Europe, unlike many rival refineries in the UK and EU which are being closed, such as Teesside, and others being sold.”
The company will be investing in operational improvements to enhance production which currently stands at only about 220,000 barrels a day (which is 75% of its capacity of 296,000 barrels a day.)
Talking about the payment structure, Nayyar said the company would make payment in two stages to Shell. “We would pay USD 175 million as soon as the agreement is signed and the remaining after a year.”
The purchase agreement would terminate if conditions are not net by November 30, he stated, adding that the acquisition would be complete by the second half of this calendar year.
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