Essar Energy to mothball unit at Stanlow refinery

Feb 18 (Reuters) - Essar Energy Plc (LSE: ESSR.L - news) said it would mothball a small crude unit and start a $100 million cost improvement programme at UK's second-biggest oil refinery as part of efforts to stem a sharp decline in refining margins.

A major planned maintenance shutdown and a furnace incident last year at the Stanlow refinery - which supplies about 15 percent of UK's transport fuel requirements - coupled with weak commodity prices hit output and refining margins.

Essar Energy, which received a possible 900-million-pound takeover offer from its largest shareholder, said third-quarter throughput at Stanlow fell 68 percent to 5.8 million barrels.

Throughput at the refinery is expected to be about 56 million barrels in the current financial year, down from the company's previous estimate of 59 million barrels.

Essar Energy, the power and oil and gas arm of privately held Essar Group, said price gross refining margins at Stanlow were a negative $2.61 per barrel during the quarter, compared with $7.22 per barrel a year earlier.

A furnace at the refinery suffered damage in November during start-up at the end of a planned shutdown, resulting in increased production of low-margin intermediary products. The company said it expects to complete furnace repairs by the second quarter of financial year 2015.

Essar Energy said it would mothball its smaller CD3 crude unit at Stanlow by October. The move would help reduce fuel oil and naphtha production and improve absolute margins while delivering cost efficiencies, the company said.

Essar Energy's shares were trading flat at 68.318 pence on the London Stock Exchange (Other OTC: LDNXF - news) on Tuesday. They fell as much as 2.7 percent earlier in the day.