By Ben Winkley
London-listed Essar Energy PLC (ESSR.LN) said Monday that
performance at its Stanlow refinery has markedly improved since it
took over the northwest England plant last year, as it benefited
from improved margins.
In its group interim report, Essar said its U.K. refining and
marketing operation recorded earnings before interest, taxation,
depreciation and amortization of $197.2 million in the six months
to Sept. 30, compared with $22.2 million in the first eight months
of ownership to March 31.
Gross refining margins were $8.03 a barrel in the period,
compared with $3.1 a barrel in the first eight months of ownership,
Essar said.
The company has an objective of adding over $3 a barrel to
refining margins at Stanlow within the next two years, and said
Monday it's already approaching an increment of $1 a barrel toward
that.
Essar is now processing 11 crude grades at Stanlow, enabling it
to take advantage of lower cost opportunities, and it said a new
natural-gas supply, to fuel the plant's boilers, will allow more
flexibility in the choice of crude oils it processes.
Europe's refining industry has endured a fraught time since the
start of the economic crisis in 2008, since then around 10
refineries have closed or sharply reduced output as profit margins
weakened amid lower demand for products and higher prices for both
crude and credit.
Although margins have been boosted this year in part as
maintenance took out a large proportion of Europe's production
capacity in the spring and autumn, Deutsche Bank, in a recent note
to clients, said it expects a softer margin environment ahead
unless more of the "surplus" capacity is removed from the
market.
Most recent data from Euroilstock showed that product stocks in
the EU-15 & Norway region stood at a five-month high at the end
of October.
Essar bought the 296,000-barrel-a-day Stanlow refinery from
Royal Dutch Shell PLC (RDSB) for $350 million. More than $800
million in capital was needed to cover the cost of crude and
refined products stored at the plant. In July, Essar struck an
agreement with Barclays PLC (BARC.LN) that saw the U.K. bank agree
to buy the inventories of crude and products at Stanlow, and to
supply crude to the refinery in line with its requirements, to
enable Essar's U.K. unit to repay a revolving credit facility
provided by 13 banks.
(Konstantin Rozhnov contributed to this item)
Write to Ben Winkley at ben.winkley@dowjones.com
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