Stanlow ups Essar Energy earnings 18%

Nov 26 2012, 19:27 IST
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Power plant operator and oil refiner Essar Energy reported a rise in earnings for H1 (Reuters) Power plant operator and oil refiner Essar Energy reported a rise in earnings for H1 (Reuters)
SummaryPower plant operator and oil refiner Essar Energy reported a rise in earnings for H1.

Power plant operator and oil refiner Essar Energy reported an 18 percent rise in core earnings for the first-half as the benefit of a contribution from its British Stanlow refinery offset its struggling Indian power business.

The company, which is 77 percent-owned by privately held Indian conglomerate Essar Group, said operational earnings before interest, tax, depreciation and amortisation (EBITDA) was $383 million for the six months ended Sept. 30.

The company, which recently changed its accounting period, reported operational EBITDA of $324 million in the six months to June 30, 2011.

Essar said Stanlow, the second largest UK refinery which Essar acquired from Royal Dutch Shell last year, had operational EBITDA of $132 million in the first half.

The company's power business continues to be hit by regulatory and coal supply issues in India, where it is struggling to obtain the permits it requires to mine the coal needed to fuel its stations.

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Essar Energy turns around Stanlow refinery

New Delhi: (PTI) London-listed Essar Energy plc has turned around UK's second largest refinery Stanlow within a year of taking it over from Royal Dutch Shell, posting a pre-tax profit of USD 197 million in six month to September 30.

"Current price EBITDA at Stanlow rose to USD 197.2 million, compared with USD 22.2 million in the first eight months of ownership to March 2012," the company said announcing its second quarter earnings.

Shell divested its refinery assets for not being profitable.

Stanlow had been run by its previous owner (Shell) as a cost centre, and had been for sale for some time when Essar purchased it, by which time employees had concerns for their future. Essar Energy acquired the refinery for USD 350 million from Shell on July 31, 2011.

Gross refinery margins rose to average USD 8.03 per barrel, compared with USD 3.06 a barrel in the first eight months to March 2012.

"Of this margin uplift, USD 1 per barrel is due to internal initiatives and investments as part of the '100 day plan' put in place following acquisition by Essar for USD 350 million in July 2011," the company said in a statement.

Essar said initiatives and investments at Stanlow aimed at improving margins by a total USD 2-USD 3 per barrel by 2014-15 (including the USD 1/barrel just achieved) are continuing - including installation of natural gas to fuel the six boilers on site, which will be completed in the coming weeks.

Stanlow is the second largest UK refinery, with nameplate capacity of 2,96,000 barrels per day, and an above average Nelson complexity of 8.2.

However, current optimised configuration gives Stanlow a 220,000 bpd operating capacity with an effective complexity above 10. This produces an above average proportion of middle distillates at 55%,--principally diesel and jet fuel - of which there is a significant and growing deficit in the UK and Europe as dieselisation of vehicles continues and weaker refineries shut.

Stanlow produces 15% of UK transport fuels. The company is installing natural gas to fuel the six boilers providing steam to drive the refinery.

Also, it has started to use 11 lower cost crudes from various geographies like Africa, Canada to optimise efficiencies.

Besides, it will close lubricants production once remaining customer obligations have been met.

Essar expect material benefits from the closure as lubricants make up only 1-2 per cent of Stanlow's output but dictate the choice of 25 per cent of the overall crude intake.

Essar expects to add USD 3 per barrel to gross refinery margins over the next two years, which would lift EBITA by USD 225 million.

Essar Oil UK employs 1,035 people directly, plus 500 contractors and 5,000 indirectly employed through the extended value chain.

It brought in a small handful of people from its Vadinar refinery business in India, retained most of the Stanlow senior management team, attracted some experienced new recruits, and ensured the existing workforce remained committed by mirroring the previous owner's conditions and rewards.

A new CEO was appointed to Essar Oil UK - Volker Schultz-after 23 years at BP.

An extensive programme of projects is well under way to make the refinery more sustainably safe, reliable, profitable and growing, the company said.

Essar Energy reports 18 pc rise in core earnings

Essar Energy plc, an India-focused integrated energy company, today reported a 18 per cent rise in core earnings in the six months ended September 30 on back of its British Stanlow refinery turnaround. The London-listed firm said operational earnings before interest, tax, depreciation and amortisation (EBITDA) was USD 383 million in April-September.

The company, which recently changed its accounting period, had USD 324 million EBITDA in first half of previous fiscal.

Essar said Stanlow, the second largest UK refinery which Essar acquired from Royal Dutch Shell last year, had operational EBITDA of USD 197 million in the first half.

Group revenue went up by 97 per cent to USD 12.8 billion primarily due to higher refining revenues in India from higher capacity and revenue due to the acquisition of Stanlow," the company said in a press statement said.

Essar said its Vadinar refinery in Gujarat is now operating at 20 million tonnes per annum capacity after all expansion units were ramped up and stabilised. The unit earned USD 6.41 on turning every barrel of crude oil into fuel in H1 as against a gross refining margin (GRM) of USD 4.75 per barrel a year ago.

GRM rose to USD 11 per barrel in September, it said.

Stanlow GRM averaged USD 8.03 per barrel in H1 as against USD 3.1 a barrel in first eight months of ownership.

Essar took over Stanlow from Shell on July 31. The unit earned a EBITDA of USD 197.2 million in H1 as compared to USD 22.2 million in first eight months of ownership.

The company said its power generation capacity has more than doubled since April 2012.

Essar said it is "exploring options to reduce interest costs for the group and extend debt repayment profile."

Essar Energy CEO Naresh Nayyar said, "We have made good progress during the half year to improve margins at both our Vadinar and Stanlow refineries".

At Vadinar, the firm is capitalising on new, higher complexity units by selling large volumes of high value diesel into India and have resolved all outstanding sales tax and related funding issues, he said.

Stanlow refinery on the other hand delivered a very substantial increase in EBITDA on the back of a good operating performance and favourable market conditions.

"We have several further projects underway at Stanlow to deliver significant additional margin enhancements," he said.

In power, the company commissioned Salaya I and Vadinar P2 coal fired projects to give the company a total of 3,310 MW of capacity.

"The last six months has seen significant progress on our growth projects and the transition to becoming an operational energy business continues with the majority of our capex programme now complete," Nayyar said. "We are a very different company to the one that listed two and a half years ago with many of the key risks from that time now behind us."

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