Fuelling hope

London, Jan. 19: Essar Energy has moved a step closer to the acquisition of Britain’s second-biggest oil refinery from Royal Dutch Shell with the launch of a $500-million bond issue.

It said the proceeds from the five-year convertible bond would be used to pursue acquisition opportunities.

The issue comes alongside news that talks between Shell and Essar over the purchase of the Stanlow refinery in Cheshire have resumed in recent weeks.

Shell is understood to have told staff at the Stanlow plant that a final decision on a sale of the refinery, which processes one sixth of Britain’s fuel, would be made before the end of the next month.

Shell confirmed that it was in “detailed discussions” with Essar regarding the sale but there was no guarantee a deal could be reached.

An Essar spokesperson said, “Essar can confirm that it is still in talks with Shell for the purchase of its Stanlow refinery and associated marketing businesses. We cannot comment on details or timelines.”

The oil and energy group wants to use a shipping terminal adjacent to Stanlow as an entry point for crude oil refined at its giant Vadinar refinery in Gujarat. The terminal offers access to the Manchester ship canal, which will allow Essar to import refined product into the heart of northern England. Essar also hopes to process additional crude from the North Sea and West Africa.

Shell and Essar have been in intermittent talks about Stanlow since late 2009, but a disagreement over price meant that talks were dormant for much of last year.

A surplus of European refining capacity should allow Essar to secure Stanlow for a relatively low price, perhaps as little as £175 million.

Essar’s bond issue has an option to increase the deal size by an additional $100million and an over-allotment option of $75 million, allowing the firm to raise up to $675 million, it said. Deutsche Bank, Standard Chartered and JPMorgan acted as joint bookrunners on the deal.