Essar Oil to buy Shell UK unit for $350-400 mln - sources

Shell fuel tankers stand idle at Shell's Stanlow terminal near Liverpool , northern England, June 13, 2008.

MUMBAI (Reuters) - Indian refiner Essar Oil is set to buy Royal Dutch Shell's Stanlow refinery in the United Kingdom for about $350 million to $400 million, two sources with direct knowledge of the development told Reuters.

The two companies have agreed on the terms and an announcement is expected soon, said the sources, who declined to be named as they were not authorised to speak to the media before an official announcement.

Essar group is controlled by Indian billionaire brothers Shashi and Ravi Ruia, who also run London-listed Essar Energy.

Essar Oil and Shell will sign an agreement on the deal "very soon", one source said, adding the acquisition will be funded through internal accruals.

Shell put plants at Stanlow in northwest England and at Heide and Hamburg in Germany on the market and media reports have valued them at between 1 billion and 1.5 billion pounds ($1.6 billion to $2.4 billion).

"Essar can confirm that it is still in talks with Shell for the purchase of its Stanlow refinery and associated marketing businesses. Talks are progressing but we cannot comment on details or timelines," an Essar spokesman said in a reply to a Reuters email seeking comment.

The Stanlow refinery has a capacity to process 267,000 barrels per day.

In December, Shell had told employees at its Stanlow refinery that India's Essar group had made a "credible" bid for the plant.

At 10:57 a.m. (0527 GMT), shares in Essar Oil, valued by the market at $3.3 billion, erased early losses of 0.9 percent and were trading up 1.7 percent at 113.10 rupees in a flat Mumbai market

(Editing by Ranjit Gangadharan)