Kassel. 2008 was an eventful year for the energy sector, which saw large fluctuations in the oil price, a burgeoning economic crisis and increasing regulatory intervention. At the same time, the global trend to nationalize energy reserves continued. Gaining access to new oil and gas fields remains one of the greatest challenges of our times. However, despite the difficult conditions, Wintershall Holding AG once again managed to make a substantial contribution to BASF SE's results in 2008 and to lay the foundations for further growth. Following the successful takeover of Revus Energy ASA, Wintershall is now one of the biggest license holders on the Norwegian continental shelf, with a total of 60 exploration licenses. The wholly owned BASF subsidiary also stepped up its activities in the Arabian Peninsula – Wintershall is now the operator of three exploration blocks in Qatar and is also active in Oman and the United Arab Emirates. In Russia, the start of natural gas production from the Achimov Formation signified the launch of the second joint project with Gazprom. Meanwhile, production from the Yuzhno Russkoye field is even more successful than expected. The maximum production of 25 billion cubic meters(RSC) of gas per year will already be reached in the middle of 2009 – two years earlier than planned. Overall, in 2008 Wintershall managed to raise oil and gas production again to 130 million barrels of oil equivalent  (2007:112) and to expand the company’s reserves at the same time. In the second segment, natural gas trading, a new sales record was even achieved in 2008.

“Wintershall is in very good shape and thus well-equipped to master the challenges of the market, even as the global economic climate becomes increasingly bleak this year", Reinier Zwitserloot, Chairman of the Board of Executive Directors of Wintershall Holding AG, said on Tuesday at the company’s Annual Press Event in Berlin. "We strengthened our strategic position immeasurably in 2008. We will master the forthcoming ventures and future strategic projects and pursue our growth targets vigorously”, Mr Zwitserloot said.

Challenging environment

2008 was an eventful year. After reaching a historic high of over 140 US dollars per barrel (159 litres) in July 2008, the oil price then sank dramatically to below 40 US dollars as a result of a heavy drop in demand and the appreciation of the dollar – and even the OPEC’s cut in production was not able to sustain the oil price on a lasting basis. However, at 97.25 US dol-lars, average revenue in 2008 was substantially higher than the previous year's figure (2007: 72.39). But as the US dollar weakened against the euro over the course of 2008 compared to the previous year, the increase in crude oil prices had less impact in euros. Brent crude oil had an average price of 66.13 euros per barrel in 2008 (2007: 52.83).

In natural gas trading, the sharp rise in the price of oil in the first half of the year led to a considerable decline in margins. This is due to the fact that the purchase prices for natural gas are adapted to the oil price without much delay whilst the selling prices aren’t adjusted until months later because of the terms of the supply agreements. However, it was possible to partly offset this disparity thanks to the fourth-quarter recovery of the margins and the positive development in the volumes sold.

Best result in the company’s history

The excellent annual result in 2008  is proof of the success of the wholly owned BASF subsidiary. In both segments – Exploration and Production and Natural Gas Trading – the company put in an excellent performance despite the increasingly difficult conditions. Wintershall was able to increase its sales to third parties on the previous year by 3.928 billion euros (+37 percent) to 14.445 billion euros. 5.308 billion euros of this were attributable to Exploration and Production (2007: 4.365). Sales to third parties (net of natural gas taxes) in Natural Gas Trading were 9.137 billion euros (2007: 6.152).

Wintershall’s profit from operating activities improved by 813 million (+27 percent) to 3.844 billion euros. That is the best result in the company’s history.  Hence, once again, Wintershall is the segment with the strongest result in the BASF Group. 3.319 billion euros of this were attributable to Exploration and Production (2007: 2.486)  and 525 million euros (2007: 545) were attributable to Natural Gas Trading.


Exploration and production activities stepped up worldwide

Norway, Russia, the Middle East – Wintershall strengthened its position immeasurably in 2008. The core region Russia continued to grow in importance for Wintershall in 2008. This was due to the increased production from the Yuzhno Russkoye gas field and the start of natural gas production from the Achimov Formation in the Siberian Urengoy reserve by ZAO Achimgaz – another joint E&P project by Gazprom and Wintershall. In order to strengthen its Russian arm, in 2008 all Wintershall’s Russian activities were consolidated under the “E&P Production” division and the headquarters of this new board division was moved from Kassel to Moscow.

Wintershall also continued with the steady expansion of its North Sea operations – with additional purchases and its own new discoveries. With the acquisition of the Norwegian E&P company, Revus Energy ASA, the BASF subsidiary laid the foundations for further growth in northwest Europe. With the acquisition of Revus Energy ASA in December 2008, Wintershall now has interests in more than 60 licenses in Norway and in 30 licences in the UK. “With its valuable development and exploration portfolio, Revus is the ideal complement to our activities in the North Sea", Mr Zwitserloot explained. In order to further improve the efficiency of its operations in the southern section of the North Sea, since last August Wintershall has been monitoring 18 of its 26 offshore platforms from Den Helder with a state-of-the-art radio surveillance system. This reduces the number of flights needed to the platforms for transport and provisions by a third and saves 2.6 million euros a year. Around half of the natural gas currently consumed in Europe still comes from the countries bordering the North Sea – Norway, the Netherlands, Denmark, the UK and Germany.

The Arabian Peninsula is also becoming a key region for Wintershall. In 2008 Wintershall was awarded the exploration license for Block 4N (Khuff) offshore Qatar and will be operator there. This block is located close to the so-called ‘North Field’, the largest natural gas field in the world. Wintershall will then be the operator of three exploration blocks in Qatar overall. The BASF subsidiary is active in Oman (Block 51) too and is also opening its own representation in Abu Dhabi. In South America, where Wintershall has been working in natural gas exploration and production for 30 years in Argentina, the company has now been awarded an exploration license in Chile for the first time and is thus expanding its portfolio in the core region South America. The company also acquired shares in two exploration blocks in Argentina.

Significant rise in production quantities

In 2008 Wintershall managed to raise the production of crude oil and natu-ral gas by 16 percent above last year’s level, to 130 million barrels oil equivalent. Although crude oil and condensate production declined year-on-year by eight percent to 7.7 million tons, natural gas production rose by 48 percent in 2008 to 11.6 billion cubic meters.

Production losses in Libya and reduced yields in older fields led to the slightly lower quantities of oil. The sharp rise in natural gas production is primarily due to the start of production from the Yuzhno Russkoye natural gas field. 116 percent of the volumes produced in 2008 were replenished. The total reserve-to-production ratio increased further to 11 years (2007: 10 years). This is based on Wintershall’s share of production in 2008 and
refers to the reserves at year end. These figures do not include any volumes from the Achimgaz project because of contractual provisions.

Substantial increase in natural gas sales in Germany and abroad

In the second segment, Natural Gas Trading, sales of the three trading ventures (WINGAS, WIEE und WIEH) held jointly with OAO Gazprom in-creased by 48.6 billion kilowatt hours (+13 percent) to 417 (2007: 368.4) billion kilowatt hours. WINGAS was responsible for 298.4 (2007: 249.8) billion kilowatt hours of this – the company achieved further growth in Germany (+17 percent) and in other European countries (+23 percent) and increased its sales by an average 19 percent, contrary to the market in general (natural gas consumption in Germany in 2008: -1 percent).

WINGAS began supplying 22 new utilities and industrial customers in Germany in autumn 2008. It also extended 26 existing supply agreements and agreed numerous additional volumes. WINGAS is also continuing on its growth course as a European energy company. In Belgium and in the UK in particular, the company managed to acquire new customers and increase sales further. These sales successes are secured with long-term purchase agreements.

For example, in 2008 a Declaration of Intent was signed to extend the existing primary supply agreement for Russian natural gas to 2043 ahead of schedule. The agreement was signed in June 2008, 35 years since the start of gas deliveries from Russia to Germany. The gas trading companies have thereby secured more than 800 billion cubic meters of natural gas from Russia over the next 35 years.

Calls for a market environment that promotes supply security

The growth strategy is flanked by investments in the expansion of the European natural gas infrastructure. The WINGAS companies are planning to make investments in the European gas infrastructure worth about 3 billion euros by 2015. The planned investments will mostly be directed at expanding the transport system on the German mainland – especially the connecting pipelines over land for the Nord Stream Baltic Sea pipeline – and the construction of new natural gas storage facilities in Europe. “That will not only bring fresh momentum to the region, it will stimulate the entire economy”, Mr Zwitserloot explained. Yet it was the responsibility of the policy-makers to make sure the right conditions were in place for this, he said.

"We welcome the EU Energy Council’s decision to allow the 'Third Way' as an alternative to ownership unbundling or the Independent System Operator (ISO) in its overall position. “In so doing it acknowledged that discrimi-nation-free network access can be achieved without interfering in the own-ership structure”, Mr Zwitserloot said. “In subsequent legislative proceed-ings, however, further compromises must not be allowed to rob the network operator shareholders of their control rights."

There should also be an appropriate rate of return on capital invested. Ac-cording to new regulations in Germany, after tax all that actually remains for new investments in pipelines is a rate of return of five percent. “In light of the enormous magnitude of the investments, their long-term nature and the risk involved, that is not an appropriate level of return”, Mr Zwitserloot explained.

Expanding the infrastructure

The planned construction of the Nord Stream pipeline through the Baltic Sea to the German coast and its associated onshore projects will considerably strengthen the network infrastructure, thus helping to ensure Europe’s supply security. Nord Stream AG, in which Wintershall has a 20 percent shareholding, has initiated the approval process and extensive environmental assessments necessary for this project. Contracts for the pipes have been concluded with suppliers and pipelaying capacities have been reserved. “And the Nord Stream pipeline is coming because it is in-dispensable for Europe”, the Wintershall Chairman said.

Following the completion of the regional planning procedures in Mecklenburg Western Pomerania, Brandenburg and Saxony, the planning approval processes for the OPAL connecting pipeline are now underway in these states.

Furthermore, the preparations for the construction of a new natural gas storage facility in Jemgum near Leer in North Germany have already begun. The area around Jemgum is especially suitable for storing natural gas because of its underground salt domes. WINGAS is cooperating with EWE AG (Oldenburg) for the planning and authorisation process for the cavern storage facility. EWE and WINGAS plan to erect 33 caverns in total in the Jemgum salt dome in the coming years. The two storage facilities will be developed together but operated separately by the two companies. With the basic operating plan for the storage project approved in 2008, the construction of the necessary infrastructure for the cavern storage facilities began last year, too. The Saltfleetby natural gas field in England, which was acquired at the end of 2004, represents another step in the expansion of Europe’s gas storage capacities. The Saltfleetby storage facility will be able to store more than 700 million cubic meters of working gas.

A look to the future

The continued expansion of its activities in the core regions will remain a key task for Wintershall in 2009. “We will continue to approach any invest-ment decisions with courage, but also with careful consideration, and pay close attention to our costs at the same time", Mr Zwitserloot explained.

The BASF subsidiary Wintershall is expecting the oil price and the value of the euro against the US dollar to weaken considerably in 2009 compared to the 2008 average as a result of the global economic crisis. Wintershall’s planning activities are based on an oil price of 50 US dollars per barrel and an exchange rate of 1.30 US dollars per euro. As a result, the company is expecting sales and profit overall to decrease.

“With a low oil price, we would also be able to take advantage of more favourable general conditions in the supplying industry for our exploration and investment projects. We will do our utmost to find attractive new fields which will allow growth in the future too”, the Wintershall Chairman explained.

Forward-looking statements and forecasts

This report contains forward-looking statements 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 fac-tors; they contain different risks and imponderables and are based on assump-tions that may not be accurate. We do not assume any obligation to update the forward-looking statements made in this document.

Wintershall, based in Kassel, Germany, is a wholly-owned subsidiary of BASF Aktiengesellschaft in Ludwigshafen. The company has been active in the exploration and production of crude oil and natural gas for over 75 years. Wintershall deliberately focuses on selected core regions, where the company has built up a high level of regional and technological expertise. These are Europe, North Africa, South America, as well as Russia and the Caspian Sea region.  The company is now Germany’s largest producer of crude oil and natural gas and with its subsidiary, WINGAS, it is also an important gas supplier on the German and European market.