BASF and LetterOne have 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. By combining these two German-based entities, their parent companies strive to create a basis for further profitable growth, optimise the portfolio footprint of the combined business and realise synergies. Wintershall DEA would have significant growth potential and be one of the largest independent European exploration and production companies. In the medium term, BASF and LetterOne envisage to list Wintershall DEA through an initial public offering.

In the coming months, BASF and LetterOne will prepare and conduct a confirmatory due diligence and negotiate definitive transaction agreements. Closing could be expected in the second half of 2018, subject to customary regulatory approvals. Until the closing, Wintershall and DEA will continue to operate as independent companies. There is no assurance that BASF and LetterOne will enter into definitive transaction agreements or that the intended transaction will be consummated.

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 shall initially hold 67% and LetterOne shall hold 33% in Wintershall DEA. In this shareholding ratio, Wintershall’s gas transportation business is not accounted for. As of closing, Wintershall DEA shall 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 shall be converted into new shares in Wintershall DEA, resulting in a higher shareholding ratio for BASF.

In 2016, the combined business had pro-forma sales of EUR 4.3 billion, EBITDA of EUR 2.2 billion and net income of EUR 326 million. Overall, production volumes of Wintershall and DEA amounted to 215 million barrels of oil equivalent (BOE) in 2016, this equals a production of around 590,000 BOE per day. Based on proven reserves (1P) of 2.1 billion BOE at the end of 2016, the reserve to production ratio of the combined business would be around 10 years.

BASF would determine the chief executive officer and LetterOne the deputy chief executive officer of Wintershall DEA. The company would be headquartered in Kassel and Hamburg, Germany. Following the closing of the transaction, BASF expects to account for its stake in the joint venture under the equity method in BASF’s consolidated financial statements.

Tags: BASF, DEA, LetterOne, Wintershall