Germany: Business Strategy BASF and Letter One to Merge Oil and Gas Businesses
The merger aims at establishing a leading independent European oil and gas company under the name Wintershall DEA. The new firm is expected to focus on international operations in core regions.
Ludwigshafen/Germany – BASF and Letter One recently signed a definitive transaction agreement to merge their respective oil and gas businesses in a joint venture, which will operate under the name Wintershall DEA. In the medium term, BASF and Letter One envisage to list Wintershall DEA through an Initial Public Offering (IPO).
Closing of the transaction is expected in the first half of 2019, subject to approvals of merger control and foreign investment authorities as well as mining authorities and the German Federal Network Agency. Until closing, Wintershall and DEA will continue to operate as independent companies.
In 2017, the combined business of Wintershall and DEA had pro-forma sales of 5.48 billion dollars, income from operations before depreciation and amortization (Ebitda) of 3.26 billion dollars and net income of 862 million dollars.
In 2017, pro-forma hydrocarbon production of Wintershall and DEA totaled 210 million barrels of oil equivalent (BOE); this equals a production of around 575,000 BOE per day. The joint venture will have a regionally more balanced footprint with growth opportunities in the core regions and strives for a daily production of 750,000 to 800,000 BOE between 2021 and 2023. Through the merger, synergies of at least 233 million dollars per year are expected as of the third year following the closing of the transaction.
Mario Mehren, Chief Executive Officer (CEO) of Wintershall, has been determined to be the Chairman of the Management Board and CEO of Wintershall DEA. Maria Moraeus Hanssen, CEO of DEA, has been determined as the deputy CEO and Chief Operating Officer of the joint venture. In addition, Thilo Wieland, member of the Board of Executive Directors of Wintershall, and Hugo Dijkgraaf, Managing Director of Wintershall Norge, will be on the five-member Management Board of Wintershall DEA. The appointment of the Chief Financial Officer will take place at a later date.
To effect the merger, Letter One will contribute all its shares in DEA Deutsche Erdöl into Wintershall Holding against the issuance of new shares of the company to Letter One. Wintershall will then be renamed Wintershall DEA, which will be headquartered in Kassel and Hamburg. BASF will initially 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. No later than 36 months after closing but in all cases before an IPO, these preference shares will be converted into ordinary shares of the company Wintershall DEA. This will result in a total shareholding of BASF in Wintershall DEA of 72.7 %.
Effect on financial reporting and outlook of BASF Group
The signing of the agreement has immediate effect on the reporting of BASF Group: Sales and earnings of Oil & Gas are no longer included in sales and Ebit of BASF Group – retroactively as of January 1, 2018 and with the prior-year figures restated. Until closing, earnings will be presented in the income before minority interests of BASF Group as a separate item (income from discontinued operations).
Key facts and figures about Wintershall and DEA
The oil and gas business of BASF is bundled in the Wintershall Group consisting of Wintershall Holding and its subsidiaries, including the gas transportation business. The oil and gas business of Letter One comprises DEA Deutsche Erdöl and its subsidiaries.
DEA is operating in the field of exploration and production of crude oil and natural gas and is headquartered in Hamburg, Germany. The company has long-standing experience along the entire value chain of the upstream business. With its workforce of around 1,150 employees, DEA has stakes in production facilities and concessions in Germany, Norway, Denmark, Egypt, Algeria and Mexico.
Wintershall, headquartered in Kassel, Germany, focuses on exploration and production in oil and gas-rich regions in Europe, Russia, South America, North Africa, and the Middle East. Together with Gazprom, Wintershall is also active in the transportation of natural gas in Europe. The company has about 2,000 employees worldwide and is Germany’s largest, internationally active oil and natural gas producer.