Aiming for its second global acquisition in the oil sector--the first was a Kenyan refinery in 2009 - London- listed Essar Energy Plc last week announced an exclusivity pact with Royal Dutch Shell to acquire the latter's Stanlow refinery in UK for $350 million (R1,540 crore). Once completed, this acquisition would not only mark Essar Energy's entry into the UK market (with a 15% market share), but will also mark India's third largest investment in the UK after the Corus and Jaguar Land Rover deals by the Tatas.
Essar Group CEO Prashant Ruia spoketo HT on his company's strategy behind the acquisitions and plans ahead. Excerpts:
You have been talking to Shell on acquiring three refineries for a long time. Why have you chosen only Stanlow? What happens to the other two?
We have been engaged in discussions with Shell for its three refineries for a while. Then, as we went through the process of an IPO (the London listing of Essar Energy), it was only post-IPO that we recommenced our discussions with Shell. We then learnt that out of the two other refineries (in Germany), one has already been sold by Shell and the other has been converted into a terminal. In any case, the key asset of the three refineries was the one at Stanlow-which is also the second biggest refinery in UK.
When do you close the deal?
Our exclusivity pact with Shell is till March 31. But the completion of the deal is subject to the consultative process with the union and employees of the Stanlow refinery.
Does it mean that if the union disagrees, the deal falls?
In any international deal in the developed world, where there is a union, such consultations with the union and employees are a must.
What is your company's strategy behind such acquisitions?
What it does for us is that it makes us more of a global oil company. Also, we are the only Indian oil and gas company which has refining assets in Europe and Kenya. This has also helped us grow in volumes and after Reliance and Indian Oil and we now have the third largest refining capacity in India. So, it gives us a global platform and it gives us a massive share of 15% of the UK fuel market.
The fuel requirement of many airports in UK is also served by this refinery.
But why are you buying out refining assets when global players like Shell are exiting?
Most of the major oil companies are reducing their exposure to refining and chemicals as they have built up huge capacities here and shifting their investments to E&P (exploration and production)
What are your plans?
We already have built a good portfolio of assets in our E&P business including coal bed methane in India. And we continue to look at good opportunities globally.