Essar Energy has now entered into exclusive negotiations with Shell for its three refineries of Stanlow, Heide and Harburg. These refineries have a total capacity of about 500 barrels per day. If you look at the negotiations which have been going on, the value has been pegged in the region of USD 1-1.5 billion though it could be much lower given the kind of growth refining margins and the refinery outlook which is going on currently.
The Stanlow refinery which has a total capacity of 296,000 barrels per day is largest of the three and it will go with other operational facilities of Stanlow. The current gross refinery margin (GRM) for these refineries is in the range of USD 2-3 per barrel in the European market and these are old refineries so the gross refining margins are much lower. So GRM for the combined capacity is in the region of USD 550 million. But these are loss-making refineries. So that basically means that the valuations will be much lower that USD 1-1.5 billion which is being talked about in the market as of now.
These refineries are running at a capacity of 75-80%. That is primarily due to the lower demand in these markets and that also means that the negotiation power for Essar is much higher when it goes out with Shell and negotiates in the next 30-45 days which is its exclusivity period.
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