Essar ‘strong performance’ update supports energy transition

After a very challenging period, Essar Oil (UK) Limited (Essar) has released a first quarter update for the three months ending 30th June 2022 that reports both operating and financial performances ‘significantly ahead of forecasts’ and sees the energy producer ‘looking forward with confidence’.

Essar’s first quarter update reports strong operating and financial performances ahead of forecasts, with the energy producer looking forward with confidence after a very challenging period.

Domestic sales volumes have continued to rise through the quarter with post covid sales delivering a 10% increase over same quarter last year. Jet fuel volumes are set to increase further as aviation industry ramps up.

Volumes were up 8% in the first half of the calendar year 2022 against the same period last year resulting in consolidated revenues during the quarter (on an IFRS basis) of $3.72 billion – an increase of 83% on the same period last year.

Russian diesel imports ended

The UK has historically been reliant on Russia to meet its diesel needs, and a key industry-wide challenge is to replace this volume with diesel from alternative domestic or non-Russian sources. In support of the UK Government’s announced ban on Russian imports to be implemented by the end of this calendar year, Essar ceased importing all Russian products (including diesel) from mid-April. 

The Company has successfully replaced any shortfall from this strategy by maximising indigenous diesel production as well as sourcing non-Russian diesel. This ensures that Essar is well-placed to support supply security as a spokesperson confirms: “Our objective continues to be to support the UK’s longer term fuel security and resilience and do what we can to meet the needs of our customers in the face of tighter levels of supply.

“All crude processed at Stanlow comes from US, West African and North Sea sources.”

Deferred tax payments cleared

Increased demand for locally produced fuel amidst the tight global supply situation has seen trading significantly ahead of previous forecasts. This stronger financial performance has enabled Essar to improve its capital structure and strengthen its balance sheet with the company confirming that it has now paid all historic covid-related deferred tax payments in full.

Essar’s overall debt levels for the current fiscal year are significantly less than 1x expected EBITDA and in line with the company’s low leverage approach to capital structure.

Transitioning to a low carbon future

Essar continues to deliver on its transition strategy with the aim of Stanlow becoming the UK’s first low-carbon refinery: ‘This stronger balance sheet also ensures we can deliver on our strategic objectives, in particular our low carbon agenda by investing in hydrogen production, carbon capture, biofuels and other similar opportunities.’

“In January, we announced the formation of Vertex Hydrogen, to build the UK’s largest hydrogen hub at Stanlow. Vertex Hydrogen is a critical investment for Essar in helping us achieve our vision of becoming the UK’s first low carbon refinery while supplying UK markets with the sustainable fuels of the future. The £1 billion investment, which will sit at the heart of the HyNet low carbon cluster, will produce a total of 1GW per year of hydrogen from 2026, equivalent to the domestic heating energy used by a major British city region.”

This was followed, in February, by Essar announcing plans to install the UK’s first £45 million hydrogen-powered furnace, another key milestone in its continued commitment to becoming the UK’s first low carbon refinery.

The new furnace, which provides the heat required for the refining process and is vital to the decarbonisation of Essar’s Stanlow operations, has already arrived in the Port of Liverpool, and will be transported to Stanlow later this month.

Looking forward with confidence

Reflecting on the progress made Deepak Maheshwari, chief executive officer of Essar Oil UK, commented: “After a very challenging 18 months, we have made huge progress on all fronts in the first quarter of 2022/23. I would like to thank our people for their hard work, dedication and commitment in what has been an unprecedented two years for our business and the sector as a whole.

“Volumes are now largely at pre-covid levels and we have been able to significantly strengthen our balance sheet and operating performance. We accelerated our support of the UK’s transition away from relying on Russian products and have ceased all Russian imports, while ramping up production of UK-made diesel.

“We look forward now with real confidence and a very clear strategy – we will be the UK’s first low carbon refinery – supplying the fuels of the future, both in terms of low carbon processes for traditional fuels, and also biofuels and a huge investment into the UK’s hydrogen future. We are delivering on our strategy and securing the long-term future of this important facility.”