November 1, 2009 at 1:08 am #2907
Update Shell, Essar in Exclusive Talks about Refinery Sales
By James Herron
Of DOW JONES NEWSWIRES
LONDON -(Dow Jones)10/31/09- Royal Dutch Shell PLC (RDSB.LN) is in talks with Indian industrial conglomerate Essar Group and no other company about its plans to sell two refineries in Germany and one in the U.K., a company spokesman said Friday.
A spokesman for Essar confirmed exclusive negotiations with Shell on the sale of the Heide and Harburg refineries in Germany and the Stanlow plant in the U.K.
The sale includes some local marketing operations, but not Shell’s retail operations, the spokesman said. No price or timeframe for a potential sale has been agreed, he said.
Shell plans to sell off about 15% of its global refining capacity, or about 600,000 barrels a day of capacity, in the next three years as part of its restructuring program aimed at increasing profitability and efficiency. It agreed in September to sell its fuel and lubricant businesses in Greece for about EUR260 million.
Refining profitability has been hit particularly hard in the global downturn and the outlook remains weak even as signs grow of an economic recovery.
“Refining margins are unlikely to recover in the short or medium term,” Shell Chief Financial Officer Simon Henry said at the company’s third-quarter results conference Thursday. Refined product demand was so weak that Shell’s total refining throughput was down 4% on the previous quarter and 8% lower on the year, primarily due to voluntary output cuts, Henry said.
According to BP PLC (BP) data, the amount of money a refiner in northwest Europe can make from refining a barrel of oil has averaged $3.23 this quarter, less than half its fourth-quarter 2008 level. However, refining margins are even worse in Asia. The average Singapore refinery has made a loss of $1.77 a barrel so far in the fourth quarter, BP data showed.
“Whether [a deal with Shell] is one step forward or one step back for Essar would depend solely on the configuration of each refinery and its valuation,” said Deepak Pareek, at Mumbai-based Angel Broking.
“As of now, the refinery outlook in Europe is not very great. The general feeling is that the refineries which are on for sale must be of poor complexity. This could be one area of concern.”
However, he said things may improve. “We are being too short sighted on the current demand-supply situation. The demand cannot remain low forever. With the global economy improving, things can turn better.”
Essar Oil Ltd. (500134.BY), the flagship energy firm of the group, operates a 280,000 barrel-a-day refinery in India, which is being expanded to a capacity of 320,000 barrels a day by 2010 and to 700,000 barrels a day by 2011.
It is also expanding overseas. In July, Essar acquired a 50% stake in 80,000- barrel-a-day Mombasa-based Kenya Petroleum Refineries Ltd., along with the right to sell oil products from its Indian refinery into east Africa, from Shell, Chevron Corp. (CVX) and BP.
Essar plans to invest $350 million-$450 million to upgrade and expand the Kenya refinery.
Company Web site: http://www.shell.com; http://www.essar.com
-By James Herron, Dow Jones Newswires; +44 (0)20 7842 9317; james.herron@ dowjones.com (Sunil Raghu and Rakesh Sharma in Mumbai contributed to this article)
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