London-listed Essar Energy today said it has entered into an exclusivity agreement with Royal Dutch Shell to buy the latter's Stanlow refinery in the UK for about $350 million.
Stanlow is the UK's second-biggest refinery and currently processes about 220,000 barrels of oil per day (bpd).
In a statement, Essar Energy said the buyout is expected to increase its current refinery production by about two-thirds.
Essar Energy has entered into an exclusivity agreement with Shell UK for the deal, which is expected to be complete during the second half of 2011.
"Shell has granted Essar Energy exclusivity in relation to the acquisition until April 1, 2011, whereby Essar Energy has the option until March 31, 2011 to enter into an asset purchase agreement," the statement said.
Essar Energy would pay a break up fee of $50 million, if it does not proceed with the deal by March 31.
On the other hand, if Shell elects not to proceed and does not execute the Asset Purchase Agreement within that period, it will pay Essar Energy a break fee of $10 million.
"Stanlow also fits very well with our strategy of providing options for the export of high quality products from our Vadinar refinery in India," Essar Energy's CEO Naresh Nayyar said.
The payment of Stanlow would be made in two stages, with $175 million payable on completion of the acquisition. A deferred payment of $175 million plus interest would be payable on the date of the first anniversary of the buyout.
"Payments from Essar Energy to Shell for the Acquisition will be funded from existing cash resources and potentially from a new debt facility," the statement said.
Essar Oil operates a 14 million tonne a year refinery at Vadinar in Gujarat, which it plans to expand to 20 million tonne by September 2012.
Previously, Essar Energy was in talks to buy not just Stanlow but also Shell's Heide and Hamburg units in Germany. It was not clear if Essar has dropped plans to buy Heide and Hamburg or Shell has rejected its bid for the two plants.
Essar first evinced interest in buying Shell's three refineries in 2009 and talks broke down last year.
The three refineries have a combined capacity of around 23 million tonne and the acquisition was part of Essar's vision to have one million barrels of refining capacity.
Shell, based in The Hague, is reducing its involvement in refining, especially in Europe, to invest more money upstream in more lucrative oil and gas production.
