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Germany: New Oil and Gas Giant BASF and Letter One Successfully Conclude Merger of Oil and Gas Businesses

| Editor: Alexander Stark

Following the approval of all relevant authorities, BASF and Letter One have successfully completed the merger of Wintershall and Dea. With the joint venture called Wintershall Dea the partners intend to create the leading independent European exploration and production company with international operations in core regions.

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The merger of Wintershall and Dea will create one of Europe's leading independent exploration and production companies. (symbolic image)
The merger of Wintershall and Dea will create one of Europe's leading independent exploration and production companies. (symbolic image)
(Source: BASF)

Ludwigshafen/Germany — In September 2018, BASF and LetterOne had signed a transaction agreement to merge their respective oil and gas businesses in a joint venture. By combining the two German-based entities, the companies lay the basis for strong profitable growth for Wintershall Dea, said Dr. Hans-Ulrich Engel, Vice Chairman of the Board of Executive Directors of BASF. Lord Browne of Madingley, Executive Chairman of L1 Energy, added that Wintershall Dea would hit the ground running, with a project pipeline that will deliver market-leading growth in the years to come.

To effect the merger, Letter One contributed all shares in Dea Deutsche Erdoel AG into Wintershall Holding against the issuance of new shares. The shareholders have decided to rename the company Wintershall Dea. The joint venture is headquartered in Kassel and Hamburg. Upon formal registration of the corresponding capital increase, BASF will hold 67 % and Letter One 33 % of Wintershall Dea’s ordinary shares reflecting the value of the respective exploration and production businesses of Wintershall and Dea. To reflect the value of Wintershall’s gas transportation business, BASF will receive additional preference shares. This will result in a total initial shareholding of BASF in Wintershall Dea of 72.7 %. No later than 36 months after closing but in all cases before an IPO, these preference shares will be converted into ordinary shares of Wintershall Dea.

In 2018, the combined business of Wintershall and Dea had pro-forma sales of $ 6.4 billion, income from operations before depreciation and amortization (Ebitda) of $ 4 billion and net income of $ 1.2 billion. In 2018, pro-forma hydrocarbon production of Wintershall and Dea together was 215 million barrels of oil equivalent (BOE). At the end of 2018, proven reserves on a pro-forma basis stood at 2.4 billion BOE, which led to a reserve to production ratio of 11 years.

As a result of the merger, the new company has a regionally balanced footprint with promising growth opportunities. Based on underlying exploration and production projects, the company is on track to reach a daily production of 750,000 to 800,000 BOE between 2021 and 2023 from currently 590,000 BOE per day. This equals an annual production growth rate of 6 % to 8 %. The JV expects to realize synergies of at least $ 223.5 million per year as of the third year following the closing of the transaction.

Wintershall Dea will be managed by an Executive Board consisting of five members: Mario Mehren, Chairman and Chief Executive Officer (CEO); Maria Moraeus Hanssen, Deputy CEO and Chief Operating Officer (COO), responsible for Europe and Mena; Thilo Wieland, Member of the Executive Board responsible for Russia, Latin America and Midstream; Hugo Dijkgraaf, Chief Technology Officer (CTO) and Paul Smith, Chief Financial Officer (CFO). In the Supervisory Board of Wintershall Dea, Hans-Ulrich Engel and Lord Browne of Madingley will be rotating non-executive Chairmen. The role will be held by Hans-Ulrich Engel for the first fifteen months.

The integration phase has been prepared during recent months. The integration will be completed in approximately one year. BASF and LetterOne envisage to list Wintershall Dea through an Initial Public Offering (IPO) in the second half of 2020, subject to market conditions.

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