BASF subsidiary Wintershall AG to be first German gas company to produce natural gas in Russia

Moscow / Kassel. The world's largest producer of natural gas, OAO Gazprom, has established the first-ever joint venture with a German partner to produce Russian natural gas. Documents for the joint venture were signed today (July 17, 2003) in Moscow by OOO Urengoygazprom, a 100% subsidiary of OAO Gazprom, and BASF subsidiary Wintershall AG. The joint venture, set up in Novy Urengoy in western Siberia under the name of OOO Achimgaz, will extract natural gas from the Achimov horizon of the Urengoy field. The deposits, located within the polar circle, are expected to produce a total of 200 billion cubic meters of gas and 40 million tons of condensate. This project signals the expansion of a collaboration between the two partners that has been marked by a pioneering and entrepreneurial spirit since its inception more than 13 years ago.

The formation of the Achimgaz (50 % OAO Gazprom / 50 % Wintershall AG) joint venture was hailed by Alexey Miller, CEO of Gazprom, as a groundbreaking event for the Russian gas industry. At the signing of the agreement in Moscow, Miller told reporters, "As a pilot project, the joint venture Achmingaz is attractive for two reasons: For one, it will enable extraction from the Achimov formation, where the development is considerably more difficult than other formations. Secondly, this joint venture represents a model for co-operation with foreign partners in the production of natural gas in Russia. Each partner sticks to his principles, although we're both moving towards a common goal. I'm confident that this will be the guarantee for success."

Reinier Zwitserloot, Chairman of the Executive Board of Wintershall AG, said, "As we have done before, we will take on a pioneering role together with our Russian partners, this time in the extraction of natural gas."

As early as 1990, the partners established a completely new form of Russian-German cooperation with their collaboration in the buying and selling of natural gas. It was only through this collaboration that Gazprom gained direct access to the natural gas market in Germany. The establishment of the WINGAS joint venture ranks even today as one of the largest investments by a Russian company in Germany. "Success makes connections," said Zwitserloot. "It was a logical move to expand collaboration to the production of natural gas as well." At the same time, the new joint venture will contribute significantly to securing future natural gas supply to Germany.

The implementation of this project is among the largest investments (about USD 700 million) ever to have been made by a German company in the Russian Federation. Wintershall brings in the necessary financial power and stability from its parent company BASF.

Strengths of both partners lead to success

The partners are currently planning implementation in two steps: a pilot phase (starting in 2004) will confirm the positive findings of a feasibility study and the economic development of gas deposits. The investments for this amount to about USD 90 million and include six wells, plus the construction of necessary processing plants. Development in every detail of the pilot project will be handled by the renowned Institut TyumenNIIgiprogaz. If this is successful, the entire development of the field will start in 2008, with investment costs amounting to another USD 600 million. The partners are expecting up to 82 production wells to develop the entire deposit. Over a period of at least 40 years, a peak of 8 billion cubic meters of natural gas and 2,5 million tons of condensate are expected to be produced annually.
The investments in Russia will guarantee more than 1,000 jobs in technical planning, manufacturing, construction, drilling and operations.

The two partners each bring their own strengths to the joint venture and complement each other almost ideally: Gazprom has decades of experience in producing gas in Arctic areas. In the tundra of western Siberia, there are temperatures that dip to minus 60 degrees Celsius and permafrost that extends 700 meters deep. Wintershall, for its part, brings its many years of experience in technically difficult deposits, particularly those with horizontal drilling under challenging geological conditions. The combination of this expertise is necessary for the planned mining of lower-lying deposits.

Gazprom has been producing natural gas and condensate from the more easily accessible deposits from Novy Urengoy just 2,500 kilometres northeast of Moscow for more than 30 years. "Extracting lower-lying deposits by means of horizontal bores will allow us not only to produce for longer, but also to make use of the existing infrastructure for longer. This allows us to contribute in a lasting manner to added value," said the CEO of Wintershall. "Our basic principles are simple. We are dividing entrepreneurial risk and success equally. This is already working convincingly with WINGAS and will also work with Achimgaz," stressed Gazprom CEO Miller.

The recipe for success in collaboration is based on a solid balance of interests between the partners. OAO Gazprom will purchase the natural gas extracted by the new joint venture and market it as it sees fit. "In the Russian market we cannot make any contribution to added value. This is where Gazprom knows its turf. However, we will receive a fair, clearly negotiated price," said Zwitserloot. According to plans made up to now, Gazprom expects to sell about 75 percent of the total gas extracted to the domestic market. Twenty-five percent is to be exported.

OAO Gazprom is the largest natural gas group in the world. The concern employs just under 300,000 employees and has in its possession about one quarter of the world's secure natural gas reserves. Its pipeline system is more than 150,000 kilometres in length. Gazprom produces 94 percent of Russian natural gas. Thirty-three percent of the gas consumed in Germany comes from Russian deposits.

Wintershall AG, with headquarters in Kassel, is a 100-percent subsidiary of BASF and has been active in exploration and production of mineral oil and natural gas for more than 70 years. Wintershall focuses consciously on a select number of areas. In addition to Russia and the Caspian region, these include Germany, the southern Baltic, North Africa and South America. Natural gas trading is the second area of activity. Wintershall employs about 1,530 employees from 30 countries.