Strategic Partnerships Boost Worldwide Competitive
Advantage For Wintershall
worth 3.5 billion euros by 2010
Russia is an important
partner for energy supply
investments in infrastructure
BASF subsidiary Wintershall will continue to develop its successful
oil and gas business with investments worth more than 3.5 billion
euros by 2010. The investments will flow into the exploration and
production of natural gas and crude oil in key regions, particularly
in Siberia, in the construction of the Nord Stream Baltic Sea
pipeline and the significant expansion of the company’s own natural
gas infrastructure in Germany. Based on the encouraging growth
figures it has seen so far and the positive outlook for its oil and
gas business, Wintershall has set challenging growth targets for the
coming years. The production of crude oil and natural gas shall be
further increased and natural gas trading will also be intensified.
"In particular the development of the strategic partnership with
Gazprom gives us the opportunity to further boost our competitive
advantage world-wide", Reinier Zwitserloot, Chairman of the Board of
Wintershall Holding AG, commented on Friday at the Annual Press
Event in Berlin. "Our cooperation with the world largest natural gas
producer is unique: it encompasses the exploration and production of
natural gas in West Siberia, its transportation through the Nord
Stream Baltic Sea pipeline and the distribution via our gas pipeline
Key role for Germany
Mr Zwitserloot spoke up in favor of broadening the energy
partnership with Russia, pointing out that Europe cannot achieve
supply security without Russia. Mr Zwitserloot also referred to
Germany’s key role in the dialog between the EU and Russia in light
of the country’s EU Council Presidency. At the same time, he warned
against interfering in ownership rights in view of the large
investment sums needed in the European natural gas infrastructure.
"If there is a risk of expropriation, the major investments needed,
which only the private sector can shoulder, will not materialize",
Mr Zwitserloot warned.
He also pointed out that Germany has traditionally enjoyed excellent
relations with Russia and has been its biggest and most important
trading partner for years. Crude oil and natural gas make up for
more than 50 percent of the Russian Federation’s export trade. "For
the foreseeable future Russia is securing its economic development
by means of selling gas and by way of long-term contracts with
Europe", the Chairman of the Board of Wintershall explained. "While
the European Union obtains natural gas from different sources, and
just 25 percent from Russia, Russia supplies more than 60 percent of
its entire gas exports in one direction only - Europe".
Russia and Europe depend on each other, he said. "We need the
natural gas, Russia needs our sales market. This interdependence
commits us to partnership", Mr Zwitserloot explained. "In return for
supply security Russia expects security for the sale of its products
in the form of long-term import contracts and protection of
Joint investments for future supply
Joint investments by BASF subsidiary Wintershall and Gazprom in the
natural gas infrastructure of Western Europe, transit pipelines and
the development of new natural gas resources are the response to
questions and doubts relating to supply security, Mr Zwitserloot
explained. "Because companies that make investments want to make a
profit, not be an obstacle".
The opportunity to make profit is the driving force of the free
market economy, he said. "Therefore, nobody can expect us to operate
our gas network as a loss-making business in the future. Who is
going to invest if it’s uncertain whether you can keep your property
and use it commercially. The EU Commission’s idea to combine the
grids of all operators and put them under state control would create
a new cartel, not competition. If you want competition, you have to
come up with more intelligent models than expropriation”, Mr
The challenge could only be mastered through entrepreneurial action
and investments, Mr Zwitserloot explained, adding, “We have always
taken supply security for granted. To ensure that we can continue to
do so in the future, we need an investment-friendly environment and
close cooperation with the producers.”
Worldwide demand for energy increases
Crude oil and natural gas will continue to make a significant
contribution to meeting the world’s demand for energy in the future
– despite alternative energies and a more efficient usage of energy.
Demand for both fuels, crude oil and natural gas, is undiminished,
and is set to grow further – amid hotly intensifying competition for
resources around the globe. This trend dominated the branch again in
2006. Encouraging developments were recorded in both sectors, the
Exploration and Production of oil and gas and Natural Gas Trading,
both in terms of profit growth and in projects and ventures.
Crude oil and natural gas production almost at level of previous
In spite of a planned outage for maintenance in Libya and production
restrictions at the end of 2006, oil and gas production generated
111 million barrels or 14.8 million tones of oil equivalent, thus
almost maintaining the high level reached in 2005 (112 million
barrels oil equivalent). Thus the BASF subsidiary has already come
very close to meeting its ambitious target to increase the
production of crude oil and natural gas by 50 percent in the first
decade of the millennium. To compare: In 2000 Wintershall produced
82 million barrels of oil equivalent.
The market environment for the Exploration and Production sector was
favorable in 2006: Compared with the previous year, the average
price for Brent crude oil, the benchmark oil price, rose by 11 U.S.
dollars a barrel (159 liters) to an average of 65 U.S. dollars a
barrel. Calculated in euros, the price of Brent crude rose by 8
euros per barrel to 52 euros per barrel.
Natural gas trading increased in Germany and abroad
Positive results were obtained also in the second sector – natural
gas trading: the volumes sold by the three joint-venture companies (WINGAS,
WIEE, WIEH) totaled 351 billion kilowatt hours (2005: 330.2 billion
kilowatt hours), an increase of +6.3 percent. The share attributable
to WINGAS was 228.2 billion kilowatt hours (2005: 210.7 billion
kilowatt hours). Furthermore, in 2006 the company grew more than the
market in Germany and was able to further increase its natural gas
sales abroad. The positive development of the spot market business
made a considerable contribution.
While the results for natural gas trading in 2005 had been impacted
by negative conditions, this trend was reversed in the fiscal year
that has just ended. The high oil price in 2005 had led to an
increase in purchase prices for natural gas, which could only be
passed on to customers after a time lag. In 2006, by contrast, the
significant improvement in external conditions helped achieve
excellent sales levels for the year.
Maximum values in sales and profits
Wintershall, a wholly owned Group company of BASF Aktiengesellschaft,
reported an increase in profit from operating activities(1) in
2006(2) to 3.25 billion euros (2005: 2.41). This result again makes
Wintershall the most profitable segment of the BASF Group. The
Exploration and Production sector generated 2.65 billion euros of
profit (2005: 2.09) and the Natural Gas Trading sector 605 million
euros (2005: 316). The positive environment supported the
development of both sectors in equal measure.
Compared with 2005, net sales (sales excluding natural gas taxes) to
third parties rose by 40 percent to 10.7 billion euros. Natural Gas
Trading contributed 6.1 billion euros to this increase, while
Exploration and Production generated an additional 4.6 billion
(1) The figure stated for profit from operating activities is before
income taxes on crude oil production in North Africa and the Middle
(2) IFRS reporting since 2005. Figures correspond to those reported
for the BASF Group’s Oil and Gas Segment.
Advancement of the “Gas for Europe” strategy
At the same time important projects were further developed in both
sectors. In November last year Wintershall put into operation a new
gas field in the Netherlands. Together with the partners, production
started in Argentina, in the Aries deposits off the coast of Tierra
del Fuego, one of the southernmost natural gas fields in the world.
We also made progress in the expansion of our E+P activities in
Russia and at the Caspian Sea: Achimgaz drill bits bored their way
into the permafrost in Siberia for the first time. Just three years
after establishment of the joint venture (50/50) the first
production wells were successfully completed last year. The
construction of the above-ground facilities has now made sufficient
progress to allow us to commence production this summer. Our
involvement in the Siberian gas field Yushno Russkoje is also
progressing. The exchange of the assets agreed between BASF and
Gazprom should be completed by the middle of the year.
Focus of exploration changed
Wintershall is broadening its activities in Europe as well. In
Denmark the company received new exploration licenses as future
operator for three blocks bordering on German territorial waters. In
Norway Wintershall obtained a share in a license led by the American
company ConocoPhillips. Overall Wintershall is now participating in
four blocks in Norway.
In Libya the BASF subsidiary prevailed despite intense competition.
Last year it won the contract for an exploration area of 11,500
square kilometers in the south of the country: an area almost as
large as Schleswig-Holstein. Wintershall has been active in
Exploration and Production in Libya since 1958 and produces crude
oil from 8 onshore and one offshore fields in the Mediterranean.
Wintershall has already invested more than 1.2 billion US dollars in
Libya and drilled more than 120 wells there.
Overall in 2006 our company took part, either directly or via
subsidiaries, in 32 completed exploration and appraisal wells –
twice as many as the previous year and 14 of which discovered new
oil or gas reservoirs. The results of 10 additional exploration
wells were not available at the end of the year. This good success
rate is also due to the fact that we concentrated mainly on
exploration near known deposits, so-called nearfield exploration,
just as in previous years, a method which generally leads to a
higher rate of success.
"However, in the future we plan to focus more on exploration in the
so-called greenfield sector - areas where the existence of oil and
gas has already been established, although not in the vicinity of
known deposits", Mr Zwitserloot explained.
Natural gas trading increases sales
There have also been great developments in our Natural Gas Trading
projects: all the pipes laid for the extension of our WINGAS
pipeline system were installed in the ground on time and within
budget. New compressors were connected to the network on schedule.
This enabled us to increase the transport capacity of the STEGAL
(Sachsen-Thüringen-Erdgas-Leitung, Saxony-Thuringia natural gas
pipeline) pipeline in East Germany by over 50 per cent and the
capacity of the WEDAL (West-Deutschland-Anbindungs-Leitung, Western
German gas link) pipeline in North-Rhine Westphalia by about 30
In addition, preparations are currently underway for the
construction of the onshore connection of the Nord Stream pipeline
to the WINGAS pipeline system. The OPAL, which will run over 480
kilometers from Greifswald to Olbernhau on the Czech border, will go
into operation in 2010. The NEL will run south of Bremen from
Greifswald to Achim and go into operation in 2012. We have also
advanced with the construction of storage capacity for Europe. On
the German-Austrian border, we have made sufficient progress with
the first construction phase of the second largest storage facility
in Central Europe to allow it to go into operation as early as this
summer. The administrative procedures necessary for the construction
of a natural gas storage facility on the German-Dutch border near
Jemgum are currently in progress.
"Yet in the very place where new storage facilities are urgently
needed, and the national government has recognized this fact,
regional smallmindedness and bureaucracy are paralyzing important
investments in supply security”, Mr Zwitserloot said referring to
the United Kingdom.
Just four percent of the annual gas requirements can be stored in
the gas storage facilities in the country, of which there are just
five. And 80 per cent of the storage capacity available is
controlled by one company. During the last proper winter Great
Britain asked continental Europe to show solidarity and provide
assistance. “Indeed, we are disposed to help, and we are willing
invest a large sum in the construction of a major natural gas
storage facility in Saltfleetby in central England. In so doing we
would be significantly improving the supply situation in the
country", Mr Zwitserloot explained. "But we’re not allowed to do so
For 2007, the BASF subsidiary expects the favorable general
conditions that affected both sectors in 2006 to deteriorate. The
company is planning to offset some of the negative impact this will
have with the continued good operating performance in Natural Gas
Trading. Sales and profit will remain at a high level, although they
are not expected to reach the peaks of 2006.
In the Exploration and Production sector, Wintershall is planning to
keep oil production at the high levels of 2006 and further increase
the production of natural gas.
Operationally, Wintershall wants to continue on the growth course of
the past few years in both sectors and successively expand its Gas
for Europe strategy. Out of the investments worth 3.5 billion euros
to be made by 2010, 0.8 billion euros will flow into the Russian
natural gas projects Achimgaz and Yuzhno Russkoye, another 0.8
billion euros are planned for projects in Europe and North Africa.
1.9 billion euros shall be invested in the construction of the Nord
Stream Baltic sea pipeline and the extension of the natural gas
infrastructure in Germany.
In addition, the Company wants to keep its expenditure on exploring
for new fields and expanding existing ones at a high level.
Challenging new growth targets set
The very encouraging growth figures so far and the positive outlook
motivated BASF to set challenging new targets for the oil and gas
production and for natural gas trading in the coming years, too.
Thus Wintershall will increase its crude oil and natural gas
production to 140 barrels of oil equivalent by 2010. In the same
period sales of natural gas are to be further increased to at least
40 billion cubic meters.