BASF and LetterOne to Merge Petroleum Assets to Form Wintershall DEA

December 19, 2017

On 7 December 2017, BASF and LetterOne signed a letter of intent to merge their respective oil and gas businesses in a joint venture, which would operate under the name Wintershall DEA. The oil and gas business of BASF is bundled in the Wintershall Group consisting of Wintershall Holding GmbH and its subsidiaries, including the gas transportation business. The oil and gas business of LetterOne comprises DEA Deutsche Erdöl AG and its subsidiaries.

It is intended to form Wintershall DEA by LetterOne contributing all its shares in DEA Deutsche Erdöl AG into Wintershall against issuance of new shares to LetterOne. Based on the valuation of the exploration and production businesses, BASF will initially hold 67% and LetterOne will hold 33% in Wintershall DEA. In this shareholding ratio, Wintershall’s gas transportation business is not accounted for. As of closing, Wintershall DEA will issue a mandatory convertible bond to BASF reflecting the value of Wintershall’s gas transportation business. No later than 36 months after closing, this bond will be converted into new shares in Wintershall DEA, resulting in a higher shareholding ratio in Wintershall DEA for BASF.

In 2016, production volumes of Wintershall and DEA on a pro-forma basis amounted to 215 million barrels of oil equivalent (MMboe) or some 590,000 barrels of oil equivalent per day (boe/d) (77% Wintershall). Based on proven reserves of 2.1 billion barrels of oil equivalent (Bboe) (76% Wintershall) at the end of 2016, the reserve to production ratio of the combined business would be around 10 years.

In March 2015, DEA – formerly part of RWE AG – was acquired by LetterOne. DEA has interest in production facilities and concessions in Germany, Norway, Denmark, Egypt, Algeria and Mexico. Subsequent to this purchase, LetterOne, through a forced sale instigated by the UK government, sold the UK assets held in DEA to INEOS.

BASF’s oil and gas activities are held in the Wintershall Group. Wintershall focuses on exploration and production in oil and gas-rich regions in Europe, North Africa, Russia, South America and the Middle East. Through a swap arrangement consummated in September 2015, Gazprom acquired a 50% interest in the activities of the Wintershall Noordzee BV subsidiary, which is active in exploration and production in the southern North Sea (Netherlands, UK and Denmark).

Figure 2: Wintershall & DEA net acreage by country