In a significant overseas acquisition in the energy sector by an Indian company,Essar Energy has entered into an agreement with Shell UK Ltd to acquire Shells oil refinery and other associated assets at Stanlow,near Ellesmere Port,Cheshire for a consideration of $350 million (around Rs 1,580 crore) for cash. In addition,there will also be a separate payment for the crude oil,refined products and certain other inventory on the Stanlow Refinery site,to be valued at completion of the acquisition based on prevailing market prices,but estimated to be in the region of $780 million. This will be funded predominantly through a working capital facility to be put in place by Essar Oil UK,prior to completion. Under the exclusivity agreement,Shell has granted Essar Energy exclusivity in relation to the acquisition until April 1,2011 whereby Essar Energy has the option until March 31,2011 to enter into an asset purchase agreement (the detailed terms of which have been discussed and agreed in principle with Shell). If by March 31,2011,Essar Energy has elected not to proceed with the acquisition,it will pay Shell a break fee of $50 million. If Essar executes the agreement,Shell has 3 business days to decide whether to proceed. If Shell elects not to proceed and does not execute the agreement within that period,it will pay Essar Energy a break fee of $ 10 million. The exclusivity agreement allows Shell time to commence its standard consultation exercise with employees at the Stanlow Refinery prior to the asset purchase agreement being signed. The acquisition of the high complexity Stanlow Refinery,which is the second largest refinery in the UK,will give Essar Energy direct access to the UK market. It is also aligned with the companys strategy to provide options for the export of products from the companys high value refinery at Vadinar,in Gujarat. The acquisition of the Stanlow Refinery is anticipated to increase Essar Energys current refinery production by approximately two thirds. The Stanlow Refinery is currently processing around 220,000 barrels of oil per day,which is approximately three quarters of its 296,000 bpd nameplate capacity.
