High expenditure for oil and gas exploration

New production platforms in Argentina and the Netherlands

Kassel. Wintershall has been successfully engaged in the exploration and production of oil and gas for 75 years. Wintershall is Germany's biggest crude oil and natural gas producer and focuses its international activities on selected core regions, where the company has a considerable amount of regional and technological expertise. These regions are Europe, North Africa, South America, as well as Russia and the Caspian Sea region. "International partnerships are increasingly turning into one of our key success factors," said Bernhard Schmidt, member of the Board responsible for Exploration & Development at Wintershall. "This is because we have made excellent experience in the past with pooling complementing strengths across national borders. We will continue to progress along this path." The intensifying cooperation with Gazprom, the world's biggest producer of natural gas, is particularly encouraging.

To ensure the sustained implementation of long-term growth targets, the exploration and development of new deposits was again of special importance in 2004. "It forms the basis for the sustainability of our activities," explained Bernhard Schmidt. Consequently, capital spending on the development of new discoveries and the expansion of existing fields was rigorously pursued last year. A total of 415 million euros was spent on exploration, capital investment, and acquisitions, 30 million euros more than in 2003.

Wells drilled in Libya and the Netherlands discover deposits

Last year, Wintershall significantly increased the number of exploration wells compared with 2003. In 2004 the company took part, either directly or via subsidiaries, in 24 completed exploration and appraisal wells, of which 10 have discovered new oil or gas reservoirs¹ . Six of these wells relate to oil discoveries in Libya and four to gas discoveries in the Dutch sector of the North Sea. The result of a further four exploration wells was not available as of the end of the year. Significant exploration expenditure was for geophysical exploration. In Libya, Argentina and Mauritania, a total of 1150 square kilometers of 3-D seismic data was gathered, and in Russia and Libya 1100 kilometers of 2-D seismic data was acquired.

The continued optimization of the portfolio also requires the acquisition of new concessions. Last year, Wintershall acquired exploration blocks off-shore the United Kingdom and offshore Denmark, thus expanding its existing activities in the southern sector of the North Sea. The new blocks in the UK and in Denmark are strategically well positioned for Wintershall because they border on areas in the Dutch and German sectors that Wintershall has already explored geologically. The company has already started production in some parts. "Here we are able to use our excellent know-how of the geological formations," said Bernhard Schmidt. The necessary infrastructure is also largely in place. In Norway, Wintershall prepared for its entry into oil and gas production last year, following a cooperation agreement concluded with its strategic partner Norsk Hydro. The Norwegian Energy Ministry has already authorized Wintershall to start activities as operator and licensee in Norway.

Expansion of gas production

Oil and condensate production was again at a high level, reaching 8.5 million tonnes, marginally below 2003 (8.6 million tonnes). In spite of temporary production restrictions imposed by OPEC, production in Libya, our largest production facility, was slightly above the previous year's volume. The Mittelplate platform and the Dieksand onshore station produced 1.0 million tonnes in 2004, by far the biggest contribution to our oil production in Germany. Additional contributions to oil production were made by the Wintershall subsidiaries in Argentina, Dubai, the Netherlands, and Russia. Proved oil reserves have a static reserve life of eight years' production at 2004 levels.

In 2004, natural gas production increased by 13 percent to 6.9 billion cubic meters, compared with 6.1 billion in 2003. Argentina, where almost half of Wintershall's total gas was produced, and the Netherlands contributed most to this encouraging development. In the Netherlands, a full year's production from two natural gas fields where production started up in 2003 and another field started in 2004 contributed significantly to the increase in production. In Libya, production of associated gas was held back by OPEC restrictions, which were in force for part of the year. In Romania, production commenced in the Sighisoara field in the first quarter of 2004. Wintershall's proved natural gas reserves have a static reserve life of just under ten years at the increased production levels of 2004.

Germany

The Mittelplate production platform, in which Wintershall and RWE Dea each have a 50 percent share, is a high-tech drilling and production rig off the coast of Schleswig-Holstein. Since production started 17 years ago, this platform, which operates according to high environmental standards, has been working in an ecologically sensitive environment without any incidents. Mittelplate is Germany's largest crude oil reservoir. In recent years, the development of this field has been boosted with extended reach wells drilled from shore. Work has started on laying a pipeline between the platform and the mainland in order to increase total crude oil production to a level of 2.5 million tonnes per year. Moreover, after completion of the project, around 1000 ship movements per year will be avoided in 2005.

In what is known as the Entenschnabel of the German North Sea sector, Wintershall reduced its interest in the exploration areas from 83.9 percent to 41.0 percent by farming out interests. An exploration well drilled here last year was not successful. Production from the gas production platform in field A6/B4 of the Entenschnabel, which is operated by Wintershall, is not affected by the farmout.

In Chiemgau and in the area around Aitingen, a location in Bavaria where Wintershall is already producing oil, Wintershall intends to drill several exploration wells in 2005; further wells are planned in the area around Leer in Northern Germany and in the German sector of the North Sea.

The Netherlands

With activities in the Dutch sector of the North Sea since 1965, Wintershall is the third largest gas producer in the Netherlands and operates 23 off-shore platforms. In the Dutch sector of the North Sea, Wintershall was involved in nine completed exploration and appraisal wells in 2004. Four have proved new natural gas reservoirs or expanded previously discovered fields. The drilling activities at two wells are continuing into the current fiscal year. The Q5-A field was another new gas field that started production last year, and development activities on two more gas fields progressed according to schedule.

In 2004, the company has commissioned the construction of the F16-A and D12-A gas production platforms; platform F16-A is to be built near The Hague and towed into the Dutch sector of the North Sea as early as August 2005. Starting in late 2005, F16-A is to produce around four million cubic meters of gas. D12-A started production in February 2005 and produces around 3 million cubic meters of gas a day.

The Hague is home to the corporate-wide competence center for offshore technology. At this center, Wintershall is advancing its shallow water expertise, because the expansion of offshore expertise is generally gaining importance in the exploration and production of oil and gas, and the company applies this expertise to its activities in other regions of the world.

Russia

In 2004, Wintershall further expanded its long-standing partnership with Russia's OAO Gazprom. The successful cooperation in natural gas trading in Europe has been extended to cover the development and production of natural gas and condensate in Russia. The Achimgaz joint venture is to produce natural gas and condensate from the deeper-lying Achimov formation of the Urengoy field in Western Siberia. The final contracts that form the basis for the cooperation were signed in 2004. Last year, the two partners also took the decision in favor of the first phase of field development, where the drilling of six production wells and the construction of production facilities will start in 2005. Funds totaling around 125 million U.S. dollars will be made available for this development. Once reservoir performance has been established, the development of the entire field is to start in 2008. Work on extending the infrastructure and preparing the well sites has now started. Gazprom subsidiary OOO Urengoygazprom and Wintershall have equal shares in the Achimgaz joint venture. The company is expected to produce around 200 billion cubic meters of natural gas and 40 million tonnes of condensate. The total capital expenditure required for this project is in the region of 700 million U.S. dollars, making it one of the biggest investments made in the Russian Federation by a German company. The project is regarded as a model for successful cooperation with foreign partners in the Russian upstream sector. BASF subsidiary Wintershall is the first German producer to become actively involved in the production of natural gas in Russia.

Wintershall began exploring for crude oil and natural gas in the Russian sector of the Caspian Sea, following the acquisition of a 70 percent interest in OOO Megatron NVK. To this end, the geological and geophysical explorations in the Tyuleni block continued. OOO Megatron NVK holds sole rights to the Tyuleni block, measuring almost 10,000 square kilometers, on the Russian shelf off the coast of Dagestan. Significant hydrocarbon deposits have already been found in this area. Currently preparations are under way for drilling the exploration well scheduled for the third quarter of 2005. Wintershall has become the operator of the block. The Caspian Sea region is regarded as one of the most dynamic growth regions for oil and gas in the world.

Volgodeminoil, a joint venture of Wintershall and its partner Lukoil, has been producing oil in the Volgograd area for 11 years. Volgodeminoil is now the longest-standing joint venture for hydrocarbon production between a Russian and a Western European partner. In addition to oil production, Volgodeminoil has exploration activities in four license areas in order to gather information for future operations.

Wintershall concluded a strategic cooperation agreement with Tatarstan-based oil company Tatneft; this agreement covers joint exploration and production projects in the Volga-Ural region. The company also concluded a cooperation agreement with Kazakhstan-based Kazmunaigaz for future upstream activities in that country.

Romania

Last year, Wintershall started production in a gas field in Sighisoara in Romania. It is the first foreign company after 1989 to discover and produce commercially recoverable hydrocarbons in Romania. For 2005 two wells are planned for the field, operated jointly with Romgaz S.A.: one exploration well and one appraisal well.

North Africa

Wintershall has been engaged in exploration and production in North Africa since 1958. The company currently produces oil from five fields (As Sarah, Jakhira, Nakhla, Tuama and Hamid) in the Sirte Basin in the Libyan Desert, and also as part of a consortium with Libya's National Oil Corporation (NOC) and French-based TOTAL, from the Al Jurf offshore field in the Mediterranean Sea off the Libyan coast. Near Jakhira, the company also operates a facility that conditions the associated gas and transports the resulting products, gas and condensate, for sale on the coast. Wintershall has already invested more than 1.2 billion U.S. dollars in Libya and drilled a total of over 120 wells. In the years 2004 through 2006, the BASF subsidiary will spend another 400 million U.S. dollars on the exploration of new fields and the development of existing fields.

In 2004, Wintershall drilled eight exploration and appraisal wells in its concession areas in the Libyan Desert; one of the wells had not been completed by the end of the year. Six of wells discovered oil. "In two cases, the wells even proved new oil fields," reported Bernhard Schmidt, member of the Board responsible for Exploration & Development at Wintershall. The development of these new discoveries is being coordinated in conjunction with the National Oil Corporation (NOC).

Last year, on an official visit to Libya, the German Chancellor commissioned a new Wintershall oil well near the Jakhira oasis. Wintershall has been producing oil from the Jakhira field since 1976. In the last few years, the company has driven the expansion of the field and extended its production facilities here and in the other existing fields. As a result, the BASF subsidiary's production in Libya has increased 7.5-fold since 1990.

Wintershall is the leading foreign oil producer in Libya and is also regarded as the technology leader in that country. It is one of only a few companies that do not flare the gas associated with crude oil production and thus makes a significant contribution to reducing CO2 emissions. The gas at Jakhira is conditioned in a special gas utilization plant and then transported by pipeline to the Libyan coast, where it is used in power stations to generate electricity. In 2002 alone, this gas utilization plant reduced CO2 emissions by a proven 2.6 million tonnes - more than the annual reductions of the entire energy and industry sectors in Germany expected from 2005. Wintershall's pioneering role in environmental protection is at the same time a key component in the expansion of its technology leadership and in its bids for new projects. In addition to the gas utilization plant near Jakhira, Libya uses further technical know-how for crude oil production: A gas-lift facility has been supporting oil production in As Sarah since November 2003.

South America

In Argentina, Wintershall has interests in oil and gas fields offshore Tierra del Fuego and in the Neuquén basin; both areas rank among the most promising hydrocarbon reserves in Argentina. In addition, the company is involved in the Cruz del Sur pipeline project; this long-distance gas pipeline was commissioned in 2001 and has been transporting Argentinean gas from Buenos Aires to Montevideo in Uruguay. In order to strengthen its position as gas supplier for the long term, Wintershall has acquired another exploration area in the Neuquén basin in Western Argentina, where it will drive seismology and other geological activities in 2005.

Off the coast of Tierra del Fuego, development of Argentina's Carina and Aries fields continued last year. After successful installation of the production platforms and pipelines, production is expected to start in the second quarter of 2005. The two fields will make a significant contribution to meeting the increasing demand for gas during the subsequent winter months in Argentina. Wintershall was involved in three exploration wells in Argentina's Neuquén and Austral Basins, two of which were not successful. Activity on the third has continued into the current fiscal year.

Outlook: More exploration and test wells

To implement its growth strategy, the company is engaged in a number of field development projects, which will be able to start producing in the near future. These include in particular the Carina-Aries gas fields in Tierra del Fuego, field F-16 in the Dutch sector of the North Sea, and the connection to the mainland of the Mittelplate oil production platform. In addition, a production well is scheduled to be drilled in Urengoy before the end of the year. "If we fully utilize our current assets and include our Achimov project, we can continue to achieve moderate increases in our production through the end of the decade and we will meet our target of 50 percent growth compared with the beginning of 2000," said Chairman of the Wintershall Board Reinier Zwitserloot.

In addition to expanding current assets, the company will continue to focus particularly on exploration. To this end, Wintershall is planning to keep capital spending at a consistently high level in 2005. The number of exploration and test wells is to be increased further compared with 2004 (24 wells). Moreover, existing partnerships with other international producers are to be extended to include new projects.

Wintershall is a wholly-owned subsidiary of BASF AG in Ludwigshafen. The company has been active in the exploration and production of crude oil and natural gas for 75 years. Today, the company is Germany's largest crude oil and natural gas producer.

Forward-looking statements and forecasts

This report contains forward-looking statements as defined by the US "Private Securities Litigation Reform Act" of 1995. These statements are based on current expectations, assumptions and forecasts by the board of executive directors, as well as on the information currently available to that board. Forward-looking statements are not deemed to be guarantees of the future developments and results set out therein. Future developments and results are in fact dependent on a large number of factors; they contain different risks and imponderables and are based on assumptions that may not be accurate. These risk factors include in particular the factors mentioned in the US stock exchange report form 20 F deposited by BASF with the US Securities and Exchange Commission. We do not assume any obligation to update the forward-looking statements made in this document.


¹ A discovery in this context means commercially recoverable reservoirs.