Essar settles outstanding HMRC payments and reports strong first quarter

Stanlow oil refinery

Essar Oil UK confirmed today that all its deferred tax payments have now been completed.

In April last year Essar entered into a ‘time-to-pay’ arrangement with HMRC for a total of £770m in VAT. In September it was granted a short extension to the original schedule, which had a January 2022 deadline.

Today, announcing a trading update for the first quarter period ending June 30, it revealed that it has paid all historic COVID-related deferred tax payments in full.

The update also revealed that domestic sales volumes for the group, which operates out of the Stanlow oil refinery near Ellesmere Port, continued to rise, with a 10% increase over same quarter last year. Jet fuel volumes are set to increase further as the aviation industry ramps up.

It is estimated that Stanlow produces 4.4bn litres of diesel, 3bn litres of petrol and 2bn litres of jet fuel each year.

First quarter revenues increased from $2.03bn in the first quarter last year to $3.72bn for 2022.

The group said it is focused on supporting UK energy security and middle distillates, mainly diesel, production is at record levels in response to UK shortages due to the banning of Russian imports.

Essar’s operating and financial performance is significantly ahead of previous forecasts, it said, supporting investment into its transition strategy with the aim of Stanlow becoming the UK’s first low carbon refinery.

In May last year it announced it had secured new financial arrangements of more than $850m. The business had been badly impacted by the pandemic lockdown that affected sales of motor and aviation fuels.

The group said its domestic sales volumes continued to rise to a new high since COVID. Volumes of 1.72 million tons were up 10% from the same quarter last year. Volumes were up eight per cent in the first half of the calendar year 2022, to 3.2 million tons against the same period last year.

It said the UK has, historically, been reliant on Russia to meet its diesel needs, and a key industry-wide challenge is to source these barrels 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.

It said its objective continues to be to support the UK’s longer term fuel security and resilience, and do what it can to meet the needs of customers in the face of tighter levels of supply. All crude processed at Stanlow comes from US, West African and North Sea sources.

Essar said trading during the quarter was significantly ahead of previous forecasts, driven by increased demand for locally produced fuel amidst the tight global supply situation.

This stronger financial performance has enabled Essar to improve its capital structure and strengthen its balance sheet.

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

A stronger balance sheet also ensures it can deliver on its strategic objectives, in particular its low carbon agenda by investing in hydrogen production, carbon capture, biofuels and other similar opportunities.

Essar said it continues to deliver on its transition strategy. In January it 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 it achieve its vision of becoming the UK’s first low carbon refinery while supplying UK markets with the sustainable fuels of the future.

The £1bn 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.

In February, Essar announced plans to install the UK’s first £45m hydrogen-powered furnace, another key milestone in its continued commitment to becoming the UK’s first low carbon refinery.

The furnace arrived in the Port of Liverpool, before being transported to Stanlow later this month. The new furnace – which provides the heat required for the refining process – is a vital piece of kit to support the decarbonisation of Essar’s Stanlow operations.

Chief executive, Deepak Maheshwari, said: “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.”

He added: “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.”