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Essar Oil

essar oil

Essar Oil is an integrated Oil & Gas company based in India.

Essar Oil Limited was incorporated in 1989. It is a fully integrated oil company of international scale with strong presence across the hydrocarbon value chain from refining to oil retail.

It was a publicly traded company (NSE: ESSAROIL & BSE: 500134), until it was taken private in a leveraged buyout which closed on December 30, 2015. It delisted the company valued at US$5.8 billion by paying US$570 million.
In July 2009, Essar acquired a 50% stake in Kenya Petroleum Refineries Ltd.

In August 2017, the company was acquired by international investors Rosneft (a leader of Russia’s petroleum industry and the world’s largest public oil and gas company by liquid hydrocarbon production and reserves) and an investment consortium comprised of global commodity trading firm Trafigura and UCP Investment Group. Rosneft bought a 49% stake in Essar oil, along with Russian investment fund United Capital Partners, in a deal worth $13 billion.

Refining

Essar Oil owns India’s second largest single site refinery at Vadinar, Gujarat. It started commercial production in May 1, 2008. Having completed its phase 1 expansion (March 2012) and optimisation (June 2012) projects, it is now India’s second largest single – location refinery, with an annual capacity of 20 mmtpa, or 405,000 barrels per day (bpd) up from 14.7 mmtpa/ 300,000 bpd previously, and a complexity of 11.8, up from 6.1 previously. This puts the Vadinar refinery amongst the world’s most complex refineries.

The refinery is capable of processing some of the toughest crudes and yet produce high quality Euro IV and V grade products. Vadinar refinery can now process a heavier crude diet and yet produce higher value, high-quality products, which will lead to increased refining margins.

Retail Business

Essar Oil has become the fastest growing retail business chain in India with the largest private sector fuel retail network. Essar Oil is the first private company in India to enter the refined products marketing sector. The retail business unit of Essar Oil is oriented towards delivering better and faster service to its customers.

They have pioneered the concept of setting up retail outlets using the franchisee-owned, franchisee-operated model. With a pan-India network of 3,600+ retail stations, Essar reaches every corner of the country covering the national and state highways and the rural areas. Essar Oil supplies high-quality petrol and high-speed diesel.

The widespread network has created an excellent land bank resulting in the development of Non-Fuel Retail (NFR). It is a promising business channel for the retail today since it facilitates high footfalls, increased customer activation and high recall value with a profitable utilization of the retail site.

All NFR activities are designed to serve the varying needs of the customers. This has created some mutually beneficial alliances across various categories such as Automobiles, Lubricants, Agrochemicals, Banking, Telecom and Food and Beverages. These tie-ups with leading players such as Exide, SERVO, CASTROL, TOTAL, ELF, J K Tyres, Bosch, SBI , Western Union Money Transfer, Amul, Café Coffee Day, Heritage Foods, National Seeds Corporation have facilitated maxum customer convenience and satisfaction.

Tie-ups with other oil marketing companies also gives Essar Oil access to product, and the right to use their terminals and facilities for the placing and marketing their products. Through this it has a presence at more than 30 supply locations across India.

EOL has recently been aggressively adding multi-fuel options for its customers and already has tie-ups with GSPC, GAIL GAS, Sabarmati Gas, Adani Gas and Gujarat Gas Corporation for selling CNG, besides tie-ups with MGL and Aegis Logistics for selling Auto LPG in its outlets. Currently, 29 of EOL’s retail outlets have CNG facilities, and five have Auto LPG nozzles.

Today, EOL is slowly emerging as a one-stop destination for retail customers with ever-changing needs. EOL Is also making a foray into retail and direct sales in Kenya and marketing all the products to the SAARC countries.

Bulk Business

EOL offers a wide range of products to bulk customers (traders and direct customers) in the industrial and transport sectors. A range of petroleum products covering numerous applications are on offer to industrial customers like power plants, and chemical, fertilizer and shipping companies. It has received approvals to supply Aviation Turbine Fuel (ATF) to the Indian Armed Forces, and has tie-ups with oil marketing companies, namely Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL).

Management
CEO: Mr. B Anand
Chief Commercial Officer: Mr. Evgeny Storozhuk
Head of Development (Refinery): Mr. Sergey Denisov

Essar Oil Limited
Corporate Id Number L11100GJ1989PLC032116
Registered Office Khambhalia Post, Post Box No. 24, Dist. Devbhumi Dwarka – 361305 Gujarat
Corporate Office Equinox Business Park, 4th Floor, Tower-2, Off Bandra Kurla Complex, L.B.S. Marg, Kurla (W), Mumbai – 400070
Website www.essaroil.co.in
Date of Incorporation September 12, 1989
Start of Business January 2, 1990
Type of company Public Limited Company

The Company earns revenue from three different business segments viz. Refinery, Marketing and Exploration and Production as outlined in subsequent section.

Milestones

2002 Essar Oil Limited is awarded its first CBM block, the RG (East)–CBM–2001/1 block in the Raniganj region of India.

2003 Essar Oil Limited commences building its network of franchised retail petrol stations.

2005 Construction of the Vadinar refinery recommences.

2006 The Vadinar refinery commences operations on a trial basis. Essar Oil Limited implements plans to debottleneck Vadinar refinery to expand its annual capacity from 10.5 mmtpa to 16 mmtpa.

2008 The Vadinar refinery commences commercial operations.

2009 Essar Oil Limited is provisionally awarded exploration and production rights in the Rajmahal CBM block RM (E)-CB-2008/IV.

2010 Essar Oil declared winner of four CBM blocks as per announcement by CCEA namely RM(E)-CBM-2008/IV, SP(NE)-CBM-2008/IV, TL-CBM-2008/IV and IB-CBM-2008/IV.

2011 Essar Oil completes 35-day planned project as part of its expansion and optimization project

2012 Essar Oil Completes Expansion and Optimisation Projects; Capacity Increased To 20MMTPA. Commissioned 510 MW coal fired captive power plant, the first refinery in Asia to do. This boosts margins by ~$1/bbl.

2013 EOL exits CDR loan facility in March 2013. Improvement in credit rating by two notches from BBB- to BBB+

2017 Rosneft deal. New acquisition development was completed in August 2017

The Rosneft Deal

Rosneft PJSC and partners including Trafigura Group purchased 49 percent of India’s Essar Oil Ltd. for $12.9 billion. The purchase gives Russia’s biggest oil producer and one of the world’s largest commodity traders access to a global demand center in Asia, while helping Essar Group reduce its debt by about $11 billion and shift focus to its struggling steel business. The closing of the acquisition enables Rosneft to enter one of the world’s fastest growing markets.

Essar’s refinery at Vadinar on India’s west coast and its fuel-retailing business along with a port terminal and power plant that helps feed the refinery is part of the deal. The deal for the 400,000-barrel-a-day refinery will give Russia’s biggest oil producer an outlet in South Asia for its production as oil-rich countries vie for market share.

A new 12-member board is formed and appointed Tony Fountain as its chairman. It named B. Anand as the new chief executive officer, replacing Lalit Kumar Gupta, who will stay on as an adviser to the management board.

The company will expand its fuel stations to 6,000 outlets from 3,500 now while the new management has yet to decide on a refinery-expansion plan, the new owners will take over about $5 billion of Essar Oil’s existing debt. Under the deal, Essar Oil has a non-compete agreement with Essar Group, which cannot venture into oil refining and fuel retailing.

Rosneft first confirmed it was buying a stake in the Essar refinery in July 2015. More suitors later entered the fray as Essar was said to be in talks with the national oil companies of Saudi Arabia and Iran to sell a stake in its refinery business. It took several months to secure approvals for the deal as it faced resistance from lenders.

Essar Oil owes Iran about 2 billion euros for crude oil purchases, which will be paid by the company under its new owners, the Indian group said at a separate press conference.
Breakdown of Essar Group’s reduction of debt: To repay $5 billion to Essar Energy to clear loans
New owners to take over Essar Oil’s $5.4 billion debt Essar to repay about $600 million to some Indian lenders.News report


What are the geopolitical implications of the sale of Essar Oil to Rosneft, given the deepening of energy relations between China and Russia?

The business transaction was the recent sale of Essar oil to the Russian company Rosneft for $13 billion. It made eminent commercial and strategic sense for both parties. Essar was (is) deeply in hock to the banks. It could not service its debt . To stave off bankruptcy, it had to sell its refinery and downstream retail outlets and the Vadinar port attached to the refinery.

Rosneft , Russia’s largest integrated oil and gas company, on the other hand, saw an opportunity to make a “big bang” entry into, as they put it, “one of the fastest growing markets” in the world .

And by doing so, secure a captive outlet for their equity crude oil from Venezuela where they have interests in several oil producing fields. The Venezuelan crude is “heavy” in composition and only sophisticated refineries like the Essar refinery can convert it into high-value refined products like LPG, gasoline and diesel.

The deal was blessed by the respective governments and President Vladimir Putin and Prime Minister Narendra Modi were present to witness the exchange of MOUs.

In itself, there is no reason to view this deal through anything but a commercial prism. Rosneft is, however, not any ordinary oil company. It is the largest publicly traded entity in Russia. It is controlled by the Russian state which owns 50 per cent plus one share of the company.

It has a global footprint. Its chairman, Igor Sechin, is a close confidante of Putin and it is an instrument for pushing Putin’s economic and geo-political agenda and, in particular, for skirting US sanctions. There are, therefore, compelling reasons to look at the implications of the Rosneft-Essar deal through a broader prism.

And when one does so, questions arise, which however far fetched, deserve contemplation .One example will bring this point into sharper relief.

Rosneft announced that the Chinese company CEFC China Energy Co Ltd would purchase 14.6 per cent of Rosneft’s shares from the Qatar Investment Authority and the trading company Glencore for a price of around $9 billion. CEFC is a relatively unknown private energy company but with strong political ties.

Its chairman, Ye Jianming, is reportedly the “princeling” grandson of the legendary Marshall Ye Jianying, one of Mao’s associates on the Long March. Again, prima facie, the deal is a solid commercial transaction driven by strategic logic. China needs to reduce its dependence on oil supplies from the Middle East and the maritime risks of disruption in the straits of Malacca and the South China seas. Rosneft (Russia), on its part, needs the money.

It had, earlier, in December 2016 “sold” 19.5 per cent shares to QIA to manage its budgetary requirements and now for reasons that are difficult to discern, it needs to shift the ownership.

One layer is easy to describe. It confirms the deepening energy relations between the two countries. Russia is already, for instance, the largest supplier of crude oil to China delivering approximately 1.1 million barrels a day. The other layers are more opaque.

It is not clear whether CEFC will have a board position and privileged access to information about Rosneft’s strategic plans. Or whether it will be used as a conduit for “back channel” strategic dialogue? These are, however, possibilities that should be factored into any analysis of the deal.

With this broadening perspective on Rosneft, what are the questions that warrant speculative reflection? I can think of three. One, what if the friend of an enemy becomes our enemy? I use the word “friend” and “enemy” loosely simply to tie together three developments — the deepening energy bonhomie between Russia and China.

China ‘s doctrine of “string of pearls” (for example, it has leased the Sri Lankan port of Hambantota and will develop the Pakistan port of Gwadar) and Russia’s ownership of the port of Vadinar. Two, given Rosneft’s direct and indirect (via China) involvement with Iran, Pakistan and India, could it be persuaded to broker the resurrection of the economically compelling Iran-India-Pakistan gas pipeline and if one pushed the envelope to the extreme of abstraction, the creation of an Asia Pacific energy infrastructure linking Central Asia-Iran-Pakistan-India-South East Asia and China? And three, how can India protect its “perpetual” interests in the event Rosneft gets sucked into a geopolitical imbroglio involving America.