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04.10.2018

"We are smart rather than simply big"Wintershall CEO Mario Mehren in an interview with the German newspaper Handelsblatt

© Wintershall/Peter Rigaud

Mr. Mehren, Wintershall and DEA are to create “the leading independent European oil and gas company.” That sounds good. But the truth is: The new company is just a niche player internationally compared to the big oil multinationals like BP or Shell.
Of course we’re smaller than the majors. But Wintershall DEA would be the number one independent oil and gas production company in Europe.

We don’t have public-sector shareholders, nor are we a fully integrated company that also operates refineries or service stations. And our output is impressive. We already produce a combined volume of gas and oil totaling 575,000 barrels of oil equivalent a day. And together we aim to increase that figure to up 800,000 barrels a day in the next three to five years. That’s equivalent to more than 120 million liters.

But isn’t size vital in the oil market?
We prefer to be smart rather than just big. Sure, size is an advantage. After all, you need a certain visibility. Yet agility, flexibility and the ability to engage with partners are also advantages. We’ve proven we have that in the past, such as in Russia, where we’ve gained an advantage through our partnership with Gazprom. That’s why I believe the size we’ll have in future is perfect. We’re big enough to be important, yet also fast, flexible, bold and experienced enough to solve complex tasks. We’re a match when it comes to competing with the majors.

So what role does Wintershall DEA aim to play in the oil and gas market?
We will focus on core regions and occupy a strong position there. We will be the largest independent producer in Northwestern Europe, Argentina and Russia. We rank among the top five in North Africa. We are one of the top players in the places we operate – and in many cases even the leader. And we are specifically not establishing a global footprint – for example, we don’t have any involvement in Australia or China. Cost effectiveness and growth will continue to have top priority for us moving ahead. 

Is it important for Germany to have its own oil and gas company?
Definitely! We contribute to a strong and independent Germany and Europe. Europe is an important region economically and politically and one of the world’s largest energy markets. We supply it with energy, because we operate where the Europe’s future resources are.

A large oil and gas company can thus also help build bridges to countries you otherwise have little to do with or with which relations are sometimes difficult. That’s above all Russia in our case, but you can also think of Libya or Egypt. When a company operates in such regions, there are intensive trade ties. That also makes political relations easier sometimes. 

So how powerful is the new company? What can you invest annually?
Both of us stand for growth. We have both increased production significantly in the past ten years. Wintershall has doubled and DEA has almost doubled output. Wintershall alone aimed to invest around €3.5 billion from 2018 to 2022. We still have to draw up a common plan for Wintershall DEA. The volume of investment will definitely not be any lower.

Wintershall’s commitment in Russia is unrivaled by any other German company. What role will business in Russia play in the future?
Business in Russia is the most important component in Wintershall’s portfolio. And that will remain so.

Your commitment in Russia is not without controversy. There is criticism, specifically with regard to the planned new Baltic pipeline, Nord Stream 2, that Europe would be too dependent on Russian gas. Will Wintershall DEA stick to the project?
Of course! Nord Stream 1 and financing of Nord Stream 2 will also be part of the new company. It’s our conviction that we need Nord Stream 2 for Europe’s gas supply, and this transaction won’t change that. We need it to cover Europe’s growing import needs cheaply. We would be well advised to use all the infrastructure available to us – whether that’s a pipeline or a new LNG terminal Germany now wants to build.

Oil and gas isn’t exactly a business with a future. How does founding a large oil and gas company square with the energy transition?
We believe there are two key issues at the moment: The question of climate change and the huge increase in energy needs worldwide. There are still 1.3 billion people who don’t have reliable access to energy. So demand for oil and gas will remain high. We aim to help ensure that energy needs can be met efficiently and sustainably and also do our bit to reduce CO2 emissions.

I beg your pardon – Wintershall DEA as a climate protector?
The world’s population is growing. And demand for energy with it. At the same time, climate change is one of the biggest challenges facing mankind. We’re convinced that we can only create a better world for current and future generations by pursuing both those ambitious goals simultaneously.
Gas can be part of the solution. Gas is far more climate-friendly than coal. Anyhow, the energy transition in Germany hasn’t been a very good example of successful climate protection so far.

To what extent?

Germany has given massive support and funding to renewables, but also allowed coal to remain the most important fuel, accounting for nearly 40 percent of the country’s energy. As a result, CO2 emissions haven’t fallen since 2009. We in Germany still emit 750 million tons of CO2 a year. If we would take all possible short-term measures to replace coal and heavy oil with gas in the power generation, heating and transportation sectors, we would have no problem achieving our climate targets. Wintershall DEA has a huge opportunity here.

Wintershall has long toyed with the idea of taking over DEA – not least when RWE sold DEA in 2014. Shouldn’t you have been more tenacious with your offer back then?

We’re coming together now. That’s what counts for me.

Couldn’t you have snapped up DEA cheaper four years ago?

A takeover was on the table back then. Now we’re merging. We are combining the two companies, so no one is paying anything to the other. We have valued both companies fairly and calculated a share ratio.

To what extent was your Russian partner Gazprom involved?
Gazprom is our most important partner and we’re in close dialog with each other. Gazprom quickly realized that BASF still has a keen interest in the partnership. Moreover, the fact that we at Wintershall DEA will carry even greater weight and clout in Germany and Europe is also in Gazprom’s interests. At any rate, Gazprom is very positive about obtaining an even bigger partner. There’s a wonderful Russian saying: Big ships go big places.

Just how independent is the new company? You now not only have just one shareholder, BASF, but a second in the shape of LetterOne.

Financial independence is crucial in our view. The shareholders have agreed to provide solid financing. We will have sufficient funds to continue growing. And going public will open up completely different opportunities.

That’s a break with the past for BASF. It has operated in the field of fossil fuel production for more than 50 years. Is Wintershall DEA now just an equity investment?

BASF will no longer fully consolidate Wintershall after the deal has been closed. In that regard, BASF is letting go of its oil and gas business a little. Yet the company also has an interest in our business continuing to grow successfully – and that can best be achieved by giving it certain freedoms.

But LetterOne is an awkward minority shareholder which has the Russian oligarch Mikhail Fridman behind it. How do you intend to come to terms with him?

Our experience so far in this process is that the people involved are very professional. They’re also entrepreneurs who want to increase value. Look at DEA. The company has grown since the acquisition. I have no worries in that regard. We will work together in a professional spirit.

When will Wintershall DEA go public?

In the second half of 2020, if all goes well. That will be a very challenging timeline. Closing of the merger is planned for the first half of 2019.

But it’s not a merger between equals. BASF will initially take over 67 percent of the ordinary shares. How do you aim to persuade DEA’s employees of the project’s merits?

DEA’s employees are just as convinced about the project’s merits as Wintershall’s employees are. The industrial logic is also obvious. We have a lot of common activities and expertise. Of course, there’s also some uncertainty, since there are overlaps in a number of functions in administration at Kassel and Hamburg, as well as in operational business in Germany and Norway. However, we’ll deal with that issue very transparently and search for good solutions openly and fairly together with the employee representatives. But there’s a positive spirit of anticipation and optimism at both Kassel and Hamburg.

You mentioned staff with overlapping functions. So, there’ll be job cuts?

It’s clear that we have overlaps and duplicate functions. Sometimes we’re involved in the same oil and gas fields. That will have an effect. We have also raised the issue openly and began talking with the employee representatives on the subject long before the agreement was signed. However, we can only give precise figures once the merger has been completed.

Mr. Mehren, thank you for the interview.

Source:
"Wir sind lieber smart als nur big" by Jürgen Flauger and Kathrin Witsch in "Handelsblatt" Nr. 160 from October, 2nd 2018, p. 16. ©Handelsblatt GmbH. All rights reserved.