Royal Dutch Shell plc (RDS.A) announced that it has entered into an agreement with Essar Oil (UK) Limited (Essar) for the sale of the Stanlow refinery in the United Kingdom. The total sale price of the deal is valued at approximately $1.3 billion. Essar had made a formal proposal to buy the refinery in mid-February.
Under the terms of a five-year contract signed by both companies, Shell will provide crude oil to Essar, while the latter will supply products to the former.
Located near Ellesmere Port, Cheshire, Stanlow takes the cake as the second largest oil refinery in UK, with 960 employees and a production capacity of about 270,000 barrels per day. The refinery not only meets about one-sixth of the country’s total petrol volume but also delivers around 15% of all UK refineries’ production, taken together.
The proposed deal also involves the disposal of Shell’s Oil Products, Chemicals Manufacturing and access rights to certain distribution terminal assets, along with the Commercial Fuels, Bulk Fuels and local Marine Fuels businesses related to the refinery.
However, certain businesses of Shell do not feature in the agreement. These include UK Retail sites, the Shell higher olefins plant and alcohols units, the lubricant oils blending plant, lubricants marketing business, Shell aviation operations at airports, non-local marine business, marine lubricants, commercial road transport marketing businesses, bitumen marketing business and the Shell technology centre at Thornton.
The deal is expected to be closed in the second half of 2011, pending customary closing conditions and regulatory approvals.
This divestment is a part of Shell’s initiatives to streamline its downstream portfolio and emphasize on the more lucrative and well performing exploration and production end of the business. The company demonstrates a strong upstream asset base in the UK with operational activities in the North Searegion and three onshore gas plants.
The Hague, Netherlands-based Shell is a global energy company engaged in oil and gas exploration, production, refining and marketing with operations and assets across the globe. Given Shell’s strong operational and production efficiency along with contribution from numerous growth projects, we expect it to continue the revenue and earnings growth momentum over the next few quarters.
We are maintaining our Outperform rating on the stock. Shell faces stiff competition from peers such as BP plc (BP) and Exxon Mobil Corp. (XOM).
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