Essar Energy Interim Management Statement for the quarter ended 31 December 2013 - Refining and Marketing UK

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18 February 2014

At the Stanlow refinery in the UK, throughput during Q3 FY2014 fell to 5.8 million barrels/0.77 mmt compared to 18 million barrels/2.40 mmt during Q3 FY2013. This was mainly due to a planned major maintenance shutdown in the quarter and a subsequent furnace incident. As a result, throughput at Stanlow is expected to be approximately 56 million barrels in FY2014 (20.1 million barrels in H2 FY2014), versus 59 million as previously stated.

The furnace incident also resulted in increased production of intermediary products which negatively impacted margins during the period. As of mid-January, business interruption losses are protected under the existing insurance policy. The likely target for completing the furnace repairs is Q2 FY2015.

Stanlow refinery achieved a CP GRM of US$ -2.61/bbl for Q3 FY2014 compared with a CP GRM of US$7.22 in Q3 FY2013 due to the impact of the turnaround on production in October and November, lower benchmark margins and the resulting increased production of intermediary products. Post-turnaround, Stanlow achieved a CP GRM of US$2.14/bbl in December 2013.

As a consequence of the turnaround, furnace incident and negative CP GRM, Stanlow has had negative cash flow of US$287 million in the year to date including capital expenditure of US$170 million. This shortfall has been met by a combination of operating cash flow, extended working capital facilities and equity.

As a result of its financial performance and the weak European refining industry environment, Stanlow is embarking on an estimated US$100 million cost improvement programme to ensure that the business is able to weather this period of exceptionally poor refining margins. This programme will focus on all aspects of operating, capital and financial costs without compromising safety or reliability.

Stanlow will be mothballing its smaller CD3 crude unit by October this year. This will further reduce fuel oil and naphtha production and improve absolute margins whilst delivering cost efficiencies. Stanlow’s yield profile is expected to become around 33% gasoline, 57% kerosene and diesel and 3% fuel oil. As a result, annualised crude throughput is expected to reduce to 71 million barrels per annum.

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