Essar Purchases Stanloiw

8/3/2019 Essar Purchases Stanloiw

1/22

Essar EnergyExclusivity Agreement and offer for Stanlow refinery


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Disclaimer

This Document does not constitute or form part of and should not be construed as, any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribefor, any securities, nor shall it (or any part of it), or the fact of its distribution, form the basis of, or be relied on in connection with or act as any inducement to enter into, anycontract, commitment or investment decision whatsoever.This Document and any information made available orally or in writing at any presentation or delivery of this Document is confidential and should not be distributed, published,copied or reproduced (in whole or in part) or disclosed by its recipients to any other person for any purpose, at any time or in any form other than with the prior written consentof the Company. By accepting receipt of this Document, you undertake not to forward this Document to any other person, or to reproduce, copy or publish this Document, inwhole or in part, for any purpose.The information contained in this Document has not been verified by the Company, its advisers or any other person and may be updated, completed, revised and amended inany way without liability or notice to any person. No reliance may be placed by any person for any purpose whatsoever on the information or opinions contained or expressedin this Document or on the completeness, accuracy or fairness of such information and opinions.No undertaking, representation or warranty or other assurance, express or implied, is made or given as to the accuracy, completeness, sufficiency or fairness of the informationor opinions contained or expressed in this Document or any information made available orally or in writing at any presentation or delivery of this Document and, to the extentpermitted by law and regulation, no responsibil ity or liability, howsoever arising, directly or indirectly, is accepted by any person for any loss, cost or damage suffered orincurred as a result of the reliance on such information or opinions or otherwise arising in connection with this Document. In addition, no duty of care or otherwise is owed byany person to recipients of this Document or any other person in relation to this Document or any information made available orally or in writing at any presentation or deliveryof this Document. Recipients of this Document should conduct their own investigation, evaluation and analysis of the business, data and property described in this Document.The information and opinions contained in this Document, unless otherwise specified, are provided as at the date of this Document. Distribution of this Document does notconstitute a representation, express or implied, by the Company, the Group, or their respective advisers, affiliates, officials, directors, employees or representatives that the

information contained in this Document will be updated at any time after the date of this Document. The information contained herein or any information made available orallyor in writing at any presentation or delivery of this Document is subject to change without notice and past performance is not indicative of future results. The Company mayalter, modify or otherwise change in any manner the content of this Document, without obligation to notify any person of such revision or changes. The information contained inthis Document has not been independently verified.Certain statements, beliefs and opinions contained in this Document or any information made available orally or in writing at any presentation or delivery of this Document areor may be forward-looking statements. Forward-looking statements can be identif ied by the use of forward-looking terminology, including, without limitation, the termsbelieves, estimates, anticipates, expects, intends, plans, goal, target, aim, may, will, would, could or should or, in each case, their negat ive or othervariations or comparable terminology. These forward-looking statements include all matters that are not historical facts. By their nature, forward-looking statements involve risksand uncertainties because they relate to events and depend on circumstances that may or may not occur in the future and may be beyond the Groups ability to control orpredict. Forward-looking statements are not guarantees of future performance and are subject to a number of risks and uncertainties. No representation is made that any ofthesestatements or forecasts will come to pass or that any forecast result will be achieved.Neither the Company, nor any member of the Group, or any of their respective affiliates or directors, officers, employees, advisers or representatives, provides any warranty,representation, assurance or guarantee, express or implied, that the occurrence of the events expressed or implied in any forward-looking statements in this Document or any

information made available orally or in writing at any presentation or delivery of this Document will actually occur. You are cautioned not to place any reliance on these forward-looking statements. None of the Company or any member of its Group is under any obligation and expressly disclaims any intention or obligation to update or revise anyforward-looking statements, whether as a result of new information, future events or otherwise.Certain information included in this Document and/or information made available orally or in writing at any presentation or delivery of this Document relates to reserves,resources, capacity and other technical measurements. Such information is sourced from technical expert reports where possible or Group data. Such information is basedon engineering, economic, geological and other technical data assembled and analysed by the Group's staff, including engineers and geologists, and that data in certain casesis reviewed by third parties. There are numerous uncertainties inherent in estimating quantities and qualities in respect of such information, including many factors beyond theGroups control. No assurance can be given that the indicated amount of reserves or resources will be recovered or that the Group's assets can continuously operate at thecapacities indicated.By accepting or accessing this Document or attending any presentation or delivery of this Document you agree to be bound by the foregoing limitations and conditions and, inparticular, will be taken to have represented, warranted and undertaken that you have read and agree to comply with the contents of this notice.

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Summary


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Summary

Essar Energy signs exclusivity agreement with Shell

Offers to buy Stanlow refinery for US$350m in cash

High complexity, large scale refinery positioned to thrive in UKmarket

Provides optionality for export of high quality products to the UKfrom Vadinar refinery in India

Competitive acquisition price

Enhances Essar Energys competitive position: focused on quality andgrowth

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5/22

Key Transaction Details

Essar Energy signs exclusivity agreement for Shells Stanlow refinery and associated assets

Essar Energy to sign asset purchase agreement by 31 March 2011 or pay break fee of

US$50 million

Shell has 3 further business days to sign asset purchase agreement or pay break fee ofUS$10 million

Consideration US$350m cash, with staged payments of US$175m on closure and US$175mplus interest at end of first year, following closure

Shell to supply crude oil to the refinery for five years

Stanlow Refinery to sell approximately 50%-60% of refined products to Shell for up to 10years, depending on product

Separate payment for crude and refined products/inventory at time of closure (circa US$780million)

Consideration from internal cash resources and potentially a new debt facilityInventory to be funded predominantly through a working capital facility to be put in place byEssar Oil UK, prior to completion.

Expected to be earnings enhancing within the first year

Transaction expected to close in the second half of 2011

5

Nothing in this announcement is or is intended to be a profit estimate for any period or a forecast of future profits and any statements relating to earningsaccretion should not be interpreted to mean that Essar Energys earnings per share for the current or future financial periods will necessarily match orexceed its historical published earnings per share


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UK Refinery Landscape: Stanlow is a Quality Asset

Stanlow is the 2nd largest UK refinery by capacity and with Nelson Complexity

of 8.2

UK total refining capacity of circa 90mmtpa, of which more than half currentlyfor sale, sold or closed

Opportunity for Essar Energy to purchase a high quality asset

6

Refinery OperatorNameplateCapacity(MMTPA)

Connectivity

Fawley Exxonmobil 16 Pipeline, Water, Rail, Road

Stanlow Shell 14 Water, Pipeline, Road, Rail

Humber Conocophillips 11 Water, Pipeline, Road, Rail

Pembroke Chevron 10 Water, Road, Rail

Grangemouth Ineos 10 Pipeline, Road, Rail

Coryton Petroplus 11 Water, Pipeline, Road, Rail

Lindsey Total 11 Water, Pipeline, Road, Rail

Milford Haven Murco 6 Water, Pipeline, Road, Rail

Teeside Petroplus 5.8 Water, Pipeline, Road, Rail


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0

2

4

6

8

10

12

14

(10,000) 40,000 90,000 140,000 190,000 240,000 290,000 340,000 390,000 440,000

NC

F

Capacity (bbl/day)

Stanlow: In Top Tier of EU Refineries by Capacity and Complexity

Refinery capacity vs. Nelson Complexity Factor (Western Europe)

Source: OGJ 2009

Stanlow

Suitable high volume product mix

The talent of its employees and current managers

Technical efficiency of the plant equipment

Compliant with safety standards

Proximity to high value product markets

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8/22

8439

8140

33763307

1987

1182

861

678

417

322

364

144

0

200

400

600

800

1000

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Vlissingen from Totalto Lukoil, 2009:

190,000 b/d

Coryton to Petroplusfrom BP 2007:172,000 b/d

Ruhr Oel to Rosneftfrom PDVSA, 2010:

500,000 b/d

Milford Haven toMurphy Oil from Total,

2007: 108,000 b/d

Petit Couronne andReichstett to Petroplusfrom Shell, 2007: total

239,000 b/d

Stanlow to Essar fromShell, 2011: 296,000

b/d

US$ per barrel complexity adjusted capacity (excluding inventory) (RHS)

Stanlow mostcompetitively

priced of recent

transactions

Competitive Acquisition Price vs. Comparator EU deals

8

US$ per barrel daily throughput capacity (excluding inventory) (LHS)


9/22

Leading Market Position in National Supply Envelope

9

Teesside - closed

Humber

Lindsey

Coryton

Stanlow

Liverpool

Mcr. Airport

Newcastle upon Tyne

NWNE

CC

South

WestSE-WL

SE-Thames

Kingsbury

Manchester

HeathrowAvonmouth

Buncefield

Fawley

Pembroke

Milford Haven

Main Line

Government Pipeline

Finaline

UKOP North

UKOP South

ESSO Midline

Manchester Jetline

The UK Energy Corridor

KEY

The North West and Central Corridor

100-250 kbpd

>250 kbpd

REFINING CAPACITY Advantaged location

Positioned to serve the UKEnergy Corridor

Natural supply envelope

North West and Midlands

Leading supply position

Supported by integration intoextensive pipeline logistics andgood road links

Birmingham

UK Refining Overview


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Refinery Overview

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Stanlow Refinery Overview

Located on south side of the Mersey estuary near Ellesmere

Port Nameplate capacity 296,000b/d

Currently operating at around 220,000b/d

Nelson Complexity 8.2

Accounts for circa one sixth of UK petrol other mainproducts diesel and kerosene for aircraft fuel

Crude oil received at Tranmere oil terminal on the Merseyand transferred by pipeline to Stanlow

Stanlows finished products are distributed as follows:

20-25% by pipeline via the northern end of the United KingdomOil Pipeline (UKOP) running to Shell Haven on the Thames

Circa 55% by road from the loading terminal at Stanlow

Circa 20% by ship, via the Manchester Ship Canal

650 hectare site11

Stanlow is the UKs

second largest refineryby capacity and has the

complexity to thrive in UKmarket


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Superior Assets

12

Complex site

with deep

conversion

Largest residue

cat crackerwithin the Shell

group

Integrated base

oil plant

Comprehensive

petrochemical

linkages

CD3

CD4

Platformer

HVI Lube OilUnit

AromaticsExtraction

GasolineBlender

Merox

Propylene

Splitter

Fuel Oil Blender

Alkylation

Ethyleneimport

Crude Ethyl Benzene

Shell HigherOlefins Process(SHOP)

Alcohols (SHF)

RefineryLubesChemicalsRetained by Shell

KEY

Fuel gas

LPG

Alpha OlefinsInternal Olefins

Alcohols

Gasoline

Toluene

Benzene

Ethylbenzene

Jet

Gasoil

Propylene

Fuel Oil

Base Oils

Bitumen

Cat Cracker

Gas Oil HDS Gas Oil Blender

PRODUCTS

Process Overview


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Site Configuration: Key Process Units

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UNIT TECHNOLOGY BUILD YEARCAPACITY

(KT/D(KB/D)

T/A CYCLE(Years)

T/ADURATION

(Days)

Crude Distillation(x2)

CDU Shell 1965/1973 39 296 3.5/6 33/36

CCR Platformer PF3 UOP 1984 4.1 35 6 14

AromaticsExtraction

U53 UOP 1974 2.6 19 7 30

Ethyl Benzene Unit EBU Badger 1991 0.6 4.5 3 42

Alkylation Alky UOP 1989 1.3 12 3.5 45PP Splitter PPS Shell 1989 0.8 10.4 3.5 35

GasoilDesulphurisation

HDS Shell 1968 8.0 60 1.5 34

Residue CatalyticCracker

FCC Shell 1988 11 76 3.5 35

Luboil High VacuumUnit

HVU Shell 1969 3.2 21.6 5 34

DistillateHydrotreater

HDT2 Shell 2001 (1) 2.5 19.1 3.5 30

NaphthaHydrotreater

HDT3 Shell 1984 4.1 35 3.5 34

CD Hydro CD_H CD Tech 2004 3.4 23 3.5 35

HD Select HD-Sel CD Tech 2004 1.9 13 3.5 35

1 Revamp


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Yield Profile

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TYPICAL YIELD High Nelson complexity of 8.2 enableshigh black to white oil conversion

Fuel oil production is significantlylower than industry norm

Since early 2009, gas-to-liquidimports has supported increased jetand diesel production

Speciality grades

Production of lubricants base oils,differentiated fuels and bitumen is adifferentiator to marker margins

Bitumen, although minimal to date,has been significantly expanded tocapture higher value product as wellas creating a sulphur sink formedium sulphur crudes

Chemical grades offer significantupgrading

Propylene sold via pipeline to anupgrading customer within the UK

Ethylbenzene is sold to Shells

Moerdijk Plant in the NetherlandsNote: Included within refinery fuel and loss is up to 0.8% of total yield that is

consumed in units to be retained by Shell


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Strong Personal Safety Performance

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RECORDABLE INJURY FREQUENCY

Accountability for personal safety

at all levels in the organisation

Comprehensive HSE Management

Systems

Embedded culture of learning from

incidents and near misses

Strong Contractor safety culture

Joint ownership of the

responsibility for safety on site

Supporting processes developed

in line with Global Shell learning

Frequency per million man hours


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Financials

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Stanlow Financial Summary

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US$000 FY 2008 FY 2009 H1 2010

Refinery Intake Volumes (000bbl) 73,351 72,883 29,121

Sales 9,688,747 5,365,232 2,520,843

Gross Margin 615,755 244,847 144,140

Operating Expenses (198,154) (184,120) (81,404)

EBITDA 417,601 60,727 62,736

Gross Refining Margin (US$/barrel) 8.4 3.4 4.9

IEA benchmark GRM (US$/barrel) 4.9 1.3 2.7

Headcount ~960 FTEs

During the first six months of 2010 some of the units at the Stanlow Refinery were not operational for 50 days due to a planned refinery turnaround outage.

The above results have been prepared to present the normalised and standalone operations of Stanlow. Historically, Stanlow did not exist as a separate legal entity and hencethe results of Stanlow were not available on a standalone basis. The above results have been prepared by extracting/ carving out financials from various entities afterconsidering various standalone and normalisation adjustments. These adjustments relate to transaction scoping and future structure of the business, accounting categorisationvs. that followed generally, transfer pricing arrangements proposed, changes to pension plan, planned and unplanned shutdowns, one off items, CSO income etc. Further,results as presented above are based on replacement cost basis (current cost of supply basis) and are on constant currency basis.


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Stanlow Funding Plan

Stanlow acquisition to be funded from internal sources andpotentially a new debt facility

Working capital will be funded predominantly through a newworking capital facility to be put in place by Essar Oil UK, prior tocompletion.

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19/22

Focus on Quality and Growth

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20/22

Refining Capability

20

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

Vadinar and KenyaPetroleum current

throughput

Vadinar phase I bymid-2011

Stanlow by mid-2011 Vadinar optimisationby Sept 2012

Vadinar phase II - inthe future

Vadinar current Vadinar phase I Stanlow

Vadinar optimisation Vadinar phase II Kenya Petroleum

Barrels of crude daily throughput capacity


21/22

Summary

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22/22

Summary

Essar Energy signs exclusivity agreement with Shell

Offers to buy Stanlow refinery for US$350m in cash

High complexity, large scale refinery positioned to thrive in UKmarket

Provides optionality for export of high quality products to the UKfrom Vadinar refinery in India

Competitive acquisition price

Enhances Essar Energys competitive position: focused on quality andgrowth

22

Documents

Essar Purchases Stanloiw