BASF and LetterOne agree to merge oil and gas businesses

Talal Husseini 28 September 2018 (Last Updated September 28th, 2018 11:50)

German multinational conglomerate BASF has signed a definitive transaction agreement with LetterOne to merge their respective oil and gas businesses – Wintershall and DEA – in a joint venture (JV) called Wintershall DEA.

BASF and LetterOne agree to merge oil and gas businesses
BASF and LetterOne have agreed to merge their oil and gas businesses in a new joint venture project. Credit: Ralf Roletschek.

German multinational conglomerate BASF has signed a definitive transaction agreement with LetterOne to merge their respective oil and gas businesses – Wintershall and DEA – in a joint venture (JV) called Wintershall DEA.

BASF chief financial officer and vice-chair of the board of executive directors Dr Hans-Ulrich Engel said: “With Wintershall DEA we create the leading independent European exploration and production company with international operations in core regions. By combining the two German-based entities, BASF and LetterOne lay the basis for further profitable growth.”

The transaction, expected to be completed by Q2 of 2019, is subject to approvals of merger control and foreign investment authorities, as well as mining authorities and the German Federal Network Agency.

Last year, Wintershall and DEA had combined pro-forma sales of €4.7bn ($5.5bn), an income from operations before depreciation and amortisation (EBITDA) of €2.8bn ($3.2bn) and a net income of €740m ($858m).

Production during the same period totalled 210 million barrels of oil equivalent (boe), which equalled around 575,000 boe per day (boepd). The JV will search for growth opportunities in the core regions and aims to produce around 750,000-800,000 boepd between 2021 and 2023.

Wintershall CEO Mario Mehren will act as chairman of the management board and CEO of Wintershall DEA. DEA chief executive Moraeus Hanssen will act as deputy CEO and chief operating officer of the JV.

Under the merger, LetterOne will donate all of its shares in DEA to Wintershall. The latter will then be renamed Wintershall DEA, which is to be headquartered in Kassel and Hamburg, Germany.

DEA executive chair of L1 Energy and chair of the supervisory board Lord Browne said in press release: “I am delighted that we have reached agreement to create Europe’s largest independent E&P company. Wintershall DEA is the largest E&P merger in Europe for over a decade, and will have a diverse portfolio of outstanding growth prospects, with the scale needed to access important new opportunities.

“We expect the company to evolve rapidly into a world-class and globally competitive organisation with an international portfolio. We look forward to working with our new partners to create a disciplined, responsible and sustainable oil and gas company.”

BASF will hold an initial 67% interest in the JV, with LetterOne obtaining the remaining 33% stake of Wintershall DEA’s ordinary shares.

These figures represent the value of the respective exploration and production in the oil and gas businesses of Wintershall and DEA. BASF will also receive additional preference shares in Wintershall’s gas transportation business after the merger.

After 36 months, these preference shares will become ordinary shares in Wintershall DEA, resulting in BASF holding a 72.7% stake in the JV.