Refiner Essar Oil UK in talks with finance providers

Essar Oil UK, operator of the 204,000 b/d Stanlow refinery in northwest England, said it is in talks with potential finance providers after a bank changed the terms of a credit facility, causing it some short-term financial difficulty.

"We are in advanced stages of discussion with a replacement lender, with both Stanlow operations and supply of products to our customers continuing as usual," said a spokesman.

The firm said that the change, in which "a bank decided to amortise a credit facility related to the company's receivables" — most likely bringing forward the repayment schedule — made no "material impact" on its operations or financial outlook. It said that it has already replaced most of the facility and that it is confident it can replace the rest.

"We are in constructive discussions with multiple finance providers and are confident that we will put in place an optimal financing solution," the spokesman said. It has twice in the past week said that it has no bank debt.

Essar Oil UK had an end-March deadline to pay £356mn ($490mn) of deferred value-added tax (VAT) and said in its most recent accounts, published last July, that meeting this would "require additional liquidity support or funds to be made available." It declined to say whether the VAT demand had been met. The firm has had a series of boardroom departures over the past month, including on 19 March its chief executive Stein Ivar Bye, who was appointed to the role only last October. Directors Rewant Ruia and Stephen Hamilton Welch left earlier this month.

"In terms of governance, we always seek to adopt best practices and, working with our advisers, we made some changes to the board in recent weeks," the spokesman said.

At least some of the firm's credit-linked crude purchase arrangements have shifted in recent months. In September last year in tenders issued to procure term and spot WTI Midland crude, it offered payment on open credit given to either it or to Australian bank Macquarie. More recent tender proposals indicate Essar Oil UK was looking to book WTI Midland with late-April and early-May delivery, offering payment within 60 days of the supply's notice of readiness or within 30 days of the issuance of the bill of lading, and requesting open credit to the company. The tender stated that "offers through Macquarie [are] not acceptable".

Macquarie acted as a potential buyer entity in Essar Oil UK's Stanlow buy tenders in September, but did not clarify in a recent request for comment if its relationship with the refiner had changed in this capacity. Macquarie continues to work with Essar Oil UK on a just-in-time (JIT) inventory basis, part of a "supply and offtake and inventory monetisation facility" that it has had in place since early 2019.

Essar Oil UK, like many other European refiners, has had to work through a year of demand destruction wreaked by the Covid-19 pandemic. In January, the first month of the UK's third national lockdown, the country's submission to the Joint Organisations Data Initiative (Jodi) showed gasoline demand down by 44pc year-on-year and gasoil demand lower by 8pc.

Essar Oil UK acknowledged this challenge, and that of depressed refining margins, but said that it expects products sales to be 63pc higher year-on-year this month. This time last year was the height of the UK's first lockdown.

The pandemic has driven other European refiners to extreme measures. Total has left its 222,000 b/d Donges refinery in France offline since November because it could not turn a profit. Spain's integrated Repsol and UK-Chinese Petroineos have both proposed to lay off hundreds of refinery staff, and Portugal's Galp and Finland's Neste have both permanently closed refineries this year.

By Benedict George and Ruxandra Iordache