New Delhi: 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 percent, - 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 percent 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 percent of Stanlow’s output but dictate the choice of 25 percent 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.
First Published: Monday, November 26, 2012, 18:31