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BASF and Gazprom agree on asset swap; BASF’s Wintershall expanding production of oil and gas, exiting gas trading and storage business

14 November 2012

BASF and Russia’s Gazprom signed a legally binding basic agreement to swap assets of equivalent value. Through the swap, BASF aims to further expand its production of oil and gas via its wholly owned subsidiary Wintershall—Germany’s largest internationally active crude oil and natural gas producer—and to exit the gas trading and storage business. Subject to the approval by the relevant authorities, the transaction is to be completed by the end of 2013 and financially retroactive to 1 April 2013.

In October, Wintershall also substantially expanded its production and reserves of oil and gas in the North Sea through an asset swap with Statoil. Wintershall will receive shares in the three producing fields Brage (32.7%), Gjøa (15%) and Vega (30%), containing reserves (2P) of around 100 million barrels of oil equivalent (boe). In addition, it is the joint intention of the companies that Wintershall takes over the operatorship of Brage, its first large production platform offshore Norway, subject to the agreement of the authorities and partners.

Through the Statoil transaction, Wintershall Norge will raise its daily production from currently around 3,000 boe to almost 40,000 boe per day next year. In return, Statoil will receive a 15% share in the development project Edvard Grieg from Wintershall and financial compensation of US$1.35 billion. An additional payment of up to US$100 million will be paid contingent on the successful future development of the Vega field.

Through the Gazprom agreement, two additional blocks of the Achimov formation of the Urengoi natural gas and condensate field in western Siberia will be jointly developed. Wintershall will receive 25% plus one share of the blocks IV and V in the Achimov formation together with the option to increase the share in the two gas and condensate deposits to 50%.

According to the development plan confirmed by the Russian mining authority, blocks IV and V have total hydrocarbon resources of 274 billion cubic meters of natural gas and 74 million metric tons of condensate. This is equivalent to a total of 2.4 billion barrel of oil equivalent. A total annual plateau production of at least 8 billion cubic meters of natural gas is expected from the two blocks. Start of production is planned for 2016.

In return, Wintershall will completely transfer the currently jointly operated natural gas trading and storage business to its long-term partner Gazprom. This includes the 50% shares in the gas trading companies WINGAS, WIEH (Wintershall Erdgashandelshaus Berlin) and WIEE (Wintershall Erdgashandelshaus Zug) including shares in the natural gas storage facilities in Rehden and Jemgum, Germany, as well as Haidach, Austria, and the gas storage operator astora. Gazprom will also receive a 50% share in the activities of Wintershall Noordzee B.V., which is active in the exploration and production of oil and gas in the southern North Sea (Netherlands, UK and Denmark).

Together the activities to be divested contributed €8.6 billion to sales and €350 million to income from operations (EBIT) of the BASF Group in 2011. The partnership in the area of the construction, operation and marketing of natural gas pipelines will continue unchanged.

The asset swap is consistent with our strategy to expand the exploration and production of crude oil and natural gas—through organic growth and targeted acquisitions. With this step, we are further developing our more than 20-year partnership: Gazprom will become more active in the natural gas trading and storage business and we will jointly expand the production at the source.

—Dr. Kurt Bock, Chairman of the Board of Executive Directors of BASF SE

Through the agreement, Gazprom and BASF are confirming their strategic partnership on the international energy market. By increasing our share in the gas trading and storage business, we are continuing our successful activities to secure the supply of gas for Europe. The agreement on exploration and production extends the geographic dimension of our cooperation, which has already successfully started with production projects in Russia.

—Alexej Miller, Chairman of the Management Committee of OAO Gazprom

Wintershall has been the preferred partner of Gazprom for many years in the production of natural gas in Russia. With the projects Yuzhno Russkoye and Achimgaz, Wintershall and Gazprom already jointly produce gas. The competitive advantages that Wintershall has through its technological competence, operational capabilities and long-term cooperations with national oil companies are becoming even more important in the area of exploration and production of oil and gas. The traditional natural gas trading business, however, offers Wintershall little possibility for differentiation, the company said.

The expansion of activities at the source has already been successful. Since 2000, Wintershall’s production of crude oil and natural gas has increased from 80 million barrels of oil equivalent (boe) to an expected around 140 million boe in 2012. This is an average increase of 5% per year. By 2015, the company plans to increase production to at least 160 million boe. Especially the production of oil and gas in Russia and the northern North Sea is to be expanded.

Based in Kassel, Germany, Wintershall Holding GmbH is a wholly owned subsidiary of BASF and has been active in the exploration and production of crude oil and natural gas for more than 80 years. Wintershall focuses on selected core regions, where the company has built up a high level of regional and technological expertise: Europe, North Africa, South America, as well as Russia and the Caspian Sea region. In addition, these operations are complemented by the company’s growing exploration activities in the Middle East. Today, the company employs more than 2,000 staff worldwide from 40 nations and is Germany’s largest internationally active crude oil and natural gas producer.

The natural gas field Yuzhno Russkoye was commissioned in 2007. Wintershall has a 35% share in the commercial success of the field via OAO Severneftegazprom. The field already reached plateau production of 25 billion cubic meters of natural gas per year in the middle of 2009. All 143 production wells are in operation. The field Yuzhno Russkoye in western Siberia, which was discovered in 1969, has recoverable reserves of more than 600 billion cubic meters of natural gas.

ZAO Achimgaz, a joint venture of Gazprom subsidiary OOO Gazprom dobytscha Urengoi (50%) and the wholly owned BASF subsidiary Wintershall (50%), produces natural gas and condensate from block 1A of the Achimov formation of the Urengoy field in the Siberian city of Novy Urengoy about 3,500 kilometers north-east of Moscow. Achimgaz plans to produce up to 200 billion cubic meters of natural gas and 40 million metric tons of condensate from the block over a period of more than 40 years. Achimgaz is currently producing around one billion cubic meters of natural gas a year from six pilot wells in the Achimov formation, which is technically extremely challenging, of the Urengoy field (Block IA). In November 2011, the next phase of the project expansion was launched, initially with 20 new planned wells. In the coming years, more than 100 wells are set to raise production to an annual plateau level of about eight billion cubic meters.

At the end of October 2011 Gazprom and BASF/Wintershall agreed on the terms and conditions for the development of two additional blocks of the Achimov formation in a framework agreement—with a plateau production potential of at least eight billion cubic meters of gas per year.

The North Sea is one of the traditional core regions of Wintershall, which has been active there since 1965. Wintershall is one of the largest producers of natural gas in the Netherlands and operates a total of 23 offshore installations there. To ensure the efficiency of its operations, Wintershall controls 18 of these Dutch platforms and one in Germany as well as the Wingate platform in the UK, operated by Wintershall, from Den Helder with a cutting-edge radio surveillance and control system.

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