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BASF and Gazprom Agree on Asset Swap

Source: www.gulfoilandgas.com 11/14/2012, Location: Asia

BASF to increase oil and gas production and exit gas trading and storage business / BASF Group company Wintershall to receive 25% plus one share in the blocks IV und V in the Achimov formation of the Urengoi field in western Siberia / Gazprom to take over 100% of the currently jointly run natural gas trading and storage business as well as 50% of Wintershall Noordzee B.V.

Dr. Kurt Bock, Chairman of the Board of Executive Directors of BASF SE, and Alexej Miller, Chairman of the Management Committee of OAO Gazprom, today (November 14, 2012) 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 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 April 1, 2013.

Through the agreement, two additional blocks of the Achimov formation of the Urengoi natural gas and condensate field in western Siberia will be jointly developed. Wintershall, a 100% subsidiary of BASF, 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,” said Dr. Kurt Bock. “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.”

“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,” said Alexej Miller.

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 – Germany’s largest internationally active crude oil and natural gas producer – and Gazprom already jointly produce gas. The competitive advantages that Wintershall has through its technological competence, operational excellence 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.

Today, 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.

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