Essar Oil ‘in talks’ over £400m private equity investment

Located on the banks of the Mersey, the Essar Oil refinery supplies 16% of the UK’s road transport fuel and is reportedly in talks over a £400m investment after being hit by the COVID crisis. Tony McDonough reports

Stanlow
Essar Oil UK’s Stanlow refinery on the banks of the River Mersey

 

Mersey oil refinery business Essar Oil (UK) is in talks with one of the world’s largest investment groups over a possible £400m investment, media reports suggest.

On Friday, Sky News reported that Essar, which operates one of the UK’s biggest oil refineries on the banks of the Mersey in Ellesmere Port, was in talks with Apollo Global Management to secure new funding.

Sky had previously reported that Essar, which supplies 16% of the UK’s road transport fuel as well as aviation fuel for Liverpool and Manchester airports, was seeking a bailout from the Government after being badly hit by the COVID-19 pandemic. The crisis has depressed demand for refined fuel across the world.

Earlier this week the company told LBN in a statement: “We remain confident that we can manage through this period and come out stronger as the economy clearly continues to recover.”

Responding to the latest report, an Essar spokesperson said: “We are in constructive discussions with multiple finance providers and are confident that we will put in place an optimal financing solution for the company.  At this stage, we are not prepared to comment on specific names.”

And, in a trading update issued late on Friday afternoon, Essar said it expected to see fuel sales from Stanlow rise 63% year-on-year in April to 573kT, up from 329kT in April 2020, as the easing of lockdown restrictions causes a surge in demand. By way of comparison, sales in February 2020 were 661kT.

These figures confirm that EBITDA for April 2021 is expected to be positive for the first time since the COVID-19 pandemic and subsequent national lockdowns began in March 2020. Projections for subsequent months look increasingly positive.

The company is not levered and has no long-term bank debt. Stanlow continues to produce and sell high value products, with a value of approximately $(US)700m a month. Demand has been increasing since February 2021 and has continued to do so during the current month.

India-based Essar took over the former loss-making Shell-owned refinery in 2011 and has since invested more than £700m to make the operation profitable. It employs more than 900 people directly at the 2,000-acre site, as well as around 800 contractors. A further 5,000 people are employed in the wider supply chain.

In February it was announced a new £600m bio-refinery that will convert non-recyclable household waste into aviation fuel, would be built at Stanlow.

Essar is teaming up with US-based Fulcrum BioEnergy and Essar’s subsidiary company, Stanlow Terminals, to deliver the project. The plant will convert several hundred thousand tonnes of pre-processed waste into low carbon aviation.

If a deal is agreed with Apollo, Sky reports the investor may take a significant stake in the business. LBN has contacted Essar Oil (UK) for comment on the latest claims.

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