Wintershall grows successfully in 2013Net income of 1.8 billion euros (+48 percent)
Expands position in Norway and Russia / Steps up activities in the Middle East / Investments of 4 billion euros in five years planned
Kassel. Wintershall achieved a new record result in 2013. The company increased net income by 48 percent to 1.8 billion euros (2012: 1.2), thus crossing the billion euros mark for the third time in a row. Sales of the BASF subsidiary rose by 16 percent to 14.8 billion euros (2012: 12.7). At 132 million barrels of oil equivalent (boe)*1, oil and gas production remained at the previous year’s high level despite the production stop in Libya. In 2014, the company anticipates a slight increase in income from operations before special items.
“We are on course and want to continue growing while adding value,” said Rainer Seele, Chairman of the Board of Executive Directors of Wintershall, at the company’s Annual Press Conference in Kassel. The integration of the acquired shares in the Brage (32.7 percent), Gjoa (15 percent) and Vega (30 percent) fields from Statoil in Norway from August 2013 and the accelerated expansion of natural gas production in Russia increased production in these countries significantly and created the foundations for the good result in 2013. This compensated for the decreased oil production from the onshore fields in Libya, which was suspended in July 2013 because of strikes at the export terminals. One-time special income from the sale of a 15 percent share in the Edvard Grieg field in Norway as well as the reclassification of GASCADE Gastransport GmbH*2 due to loss of control also contributed positively to the result. The sales volumes and sales of natural gas sold in 2013 were slightly above the previous year’s level, however, income declined, mostly as a result of pressure on retail margins*3.
“The good results in 2013 form part of a continuing successful decade in which we have increased oil and gas production by four percent a year on average. That is more than twice the industry average,” Seele said. In 2015 the company plans to further extend oil and gas production, to more than 160 million boe. “That corresponds to an increase in our production of more than 50 percent within a decade,” Seele explained. Wintershall will continue making a significant and reliable contribution to the success of the BASF Group, he added. To this end, four billion euros will be invested in expanding the oil and gas business, concentrating on Norway and Russia, in the next five years.
In the search for new crude oil and natural gas deposits, Wintershall finished drilling a total of 20 exploration and appraisal wells in 2013, of which eight were successful. With the Asha Noor exploration well in the southern Norwegian North Sea, Wintershall has discovered an additional crude oil reservoir, which the company operates itself. Two other appraisal wells in the Skarfjell discovery in Norway were also successful. The company also discovered a new crude oil reservoir (Hibonite) in the southern North Sea in Danish territorial waters near the Ravn field. In addition, the Ockley and Bonneville wells in the British North Sea were also successful. Both wells in concession 4N in Qatar confirmed hydrocarbon deposits of 450 million boe.
Wintershall’s proven crude oil and natural gas deposits totaled 1.5 billion boe at the end of 2013, 20 percent more than in the previous year. The company replenished 280 percent of the volumes produced in 2013. The reserve-to-production ratio, which is based on Wintershall’s share of production in 2013 and refers to the reserves at year end, is eleven years (2012: nine years).
“Our growth strategy focuses on expanding our oil and gas production in our core regions Europe, Russia, North Africa, South America and the Middle East. We are good at turning our plans into results and will continue to expand Wintershall, already Germany’s leading oil and gas producer, internationally,” Seele explained: “German engineering virtues are part of the basic equipment we will take with us. Furthermore, we have 120 years of history in searching for natural resources, so we will continue our commercial success with innovative technologies and targeted cooperation agreements.”
Building on strategic partnerships
With the acquisition of assets from Statoil in July 2013, Wintershall achieved a significant milestone in the cooperation established in 2012. As a result of the transaction, the daily oil and gas production in Norway rose from around 3,000 barrels of oil equivalent (boe) to just under 40,000 boe. In addition, in October 2013 Wintershall took over the operatorship of the Brage oilfield with a major production platform on the Norwegian Continental Shelf. Brage was the first producing platform that Statoil has handed over to a new operator. The majority of the former Statoil employees have now moved over to Wintershall and continue to work on Brage.
The company is the operator of more than half of the 50 licences in Norway. This makes Wintershall one of the big licence-holders in the country. The company’s licence portfolio in the North Sea was expanded in 2013 with the award of four new exploration licences in Norway and six new blocks in the British North Sea. The plans for the development and operation of the Knarr and Edvard Grieg oil fields have been approved by the Norwegian authorities. In December 2013 Wintershall sold selected assets on the British Continental Shelf to the Hungarian MOL Group as part of our portfolio optimization. The transaction is expected to conclude in the first quarter of 2014 with retroactive financial effect as of January 1, 2013.
Wintershall’s cooperation with its long-standing partner Gazprom is proof that partnerships are possible, and indeed successful, over many decades. The two companies further developed their cooperation in 2013. As part of an asset swap, Wintershall will acquire 25 percent plus one share in two additional blocks in the Achimov Formation within the Urengoy field in Western Siberia in 2014. In the plateau phase we expect an annual production of at least eight billion cubic metres of gas from the two Achimov blocks. The start of production is scheduled for 2016. “With this asset swap we are taking our strategic partnership at the source with Gazprom another step further,” Seele said. “We are producing, investing and learning together. And we are doing so where it is complex and difficult because we know that we are good when we work together,” the Wintershall CEO explained.
The quality of the cooperation is evident in the development of block IA in the Achimov formation within the Urengoi field in Russia. Wintershall has already been involved in this project for a decade and holds a stake of 50 percent in the joint venture Achimgaz. The gradual development of this field was accelerated; 25 wells were producing at the end of 2013. The joint venture plans to increase production to an annual plateau of eight billion cubic metres by 2018 with over 100 wells.
Germany’s largest crude oil and natural gas company is also active in South America, North Africa and increasingly in the Middle East region as well as Europe and Russia.
In 2013 Wintershall continued its cooperation with ADNOC, the national oil company of Abu Dhabi, in the Shuwaihat sour gas and condensate project. Together with the Austrian oil and gas company OMV and ADNOC, Wintershall, which is the operator, is preparing the first appraisal. The project takes an important step to establishing a greater presence in the Middle East region. Wintershall will also work together with Mubadala Petroleum from Abu Dhabi on potential projects in the MENA region. Off the coast of Qatar Wintershall is involved in the exploration of Block 4N in the Khuff formation, where natural gas was proven in 2013. The commercial and technical development of this new reservoir, Al Radeef, is still being examined.
Wintershall operates eight oil fields in Libya in the onshore concessions 96 and 97. Strikes at export terminals forced the company to suspend the entire crude oil and gas production in July 2013. The Al Jurf offshore oil field in Libya, in which Wintershall has an investment, was able to remain in normal operation all year. “At the moment it is unclear when the export blockade will be lifted. But we do expect to be able to resume onshore production in Libya,” Seele said.
Wintershall is the fourth largest natural gas producer in Argentina and holds shares in 15 onshore and offshore fields there. In the Neuquén Basin Wintershall continues technology projects to explore the potential for shale gas and oil. In 2013, Wintershall and Gas y Petróleo del Neuquén (GyP) signed a joint venture agreement on the exploration and possible further development of the Aguada Federal block. Very promising shale is expected from the Vaca Muerte formation in the 97-square-kilometre block in the east of the Neuquén province. Wintershall is acquiring a share of 50 percent in Aguada Federal from GyP and will take over the operatorship of the block. The Argentinean government created various incentives to encourage investment in the oil and gas sector. Wintershall therefore was able to achieve, for example, significantly higher earnings contributions for gas volumes exceeding a certain base production level. These improved conditions support the search for new deposits, in which Wintershall is increasingly exploring unconventional resources.
Domestic production as centre for innovation
Wintershall also produces oil and gas in its home country. About twelve percent of natural gas requirements in Germany are currently supplied by domestic reservoirs. Because of the very complex geological conditions, the production of natural resources in Germany is technologically demanding and often only possible with considerable additional expenditure and special techniques. But this means that domestic production also serves as a center of innovation for new technologies for Wintershall.
There is particular interest internationally in the research project with the biopolymer Schizophyllan, which is being developed together with BASF. The biopolymer produced by an indigenous fungus thickens the water that is injected into the reservoir to enhance oil production. Experts expect this technology to allow an effective and environmentally sound exploitation of mature oil fields. At the Bockstedt oil field Wintershall continued the field test for increasing recovery rates with the biopolymer Schizophyllan.
Continued expansion of the European natural gas infrastructure
Wintershall contributes to a secure supply of natural gas in Europe with its participation in the Nord Stream pipeline, amongst other things. The pipeline runs from Russia through the Baltic Sea to the German coast and has an overall capacity of 55 billion cubic metres of natural gas. The gas is then being further transported by the connecting pipelines OPAL and NEL. OPAL has been in operation since 2011. The North European Natural Gas pipeline, NEL, was completed in October 2013. With its full transport capacity of around 20 billion cubic metres of natural gas per year, the NEL is now ready for commercial operation.
In addition to Nord Stream, Wintershall is also participating in the construction of the offshore part of the South Stream natural gas pipeline through the Black Sea. Agreements to this effect were signed in 2012. The aim of South Stream is to create a new transport possibility for Russian natural gas to South and South-East Europe. The gradual expansion to a transport capacity of 63 billion cubic metres of natural gas per year is scheduled to begin at the end of 2015.
Outlook for 2014
“We expect the oil price in 2014 to be at approximately the same level as the previous year,” Seele said: “We are anticipating a yearly average for the oil price of 110 US dollars and an exchange rate of 1.30 US dollars to the euro. We expect sales considerably below the 2013 level as a result of the divestiture of the gas trading and storage business planned for the middle of 2014.” In 2014 the company expects a slight increase in income from operations before special items.
*1 Figures adjusted according to IFRS 10 and 11. The values contain 51 percent of the Libyan onshore oil production that is incorporated in the consolidated financial statements in accordance with the equity method.
*2 This company had previously been fully consolidated. As of December 31, 2013, the full consolidation has been ended and since then GASCADE has been accounted for using the equity method in the BASF Group financial statements.<//span>
*3 As part of an asset swap our longtime partner Gazprom will receive Wintershall’s share of the gas trading and storage business as well as a share of 50 percent in Wintershall Noordzee BV. In return Wintershall will acquire 25 percent plus one share in two additional blocks of the Achimov formation of the Urengoy field in Western Siberia. The transaction will take place with retroactive financial effect as of April 1, 2013.
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 factors; they contain different risks and imponderables and are based on assumptions that may not be accurate. We do not assume any obligation to update the forward-looking statements made in this document.
Wintershall Holding GmbH, based in Kassel, Germany, is a wholly-owned subsidiary of BASF in Ludwigshafen. The company has been active in the extraction of natural resources for 120 years, and in the exploration and production of crude oil and natural gas for over 80 years. Wintershall focuses on selected core regions where the company has built up a high level of regional and technological expertise. These are Europe, Russia, North Africa, South America, and increasingly the Middle East region. The company wants to expand its business further with exploration and production, selected partnerships, innovation and technological competence. Wintershall employs some 2,500 staff worldwide from 40 nations and is now Germany’s largest, internationally active crude oil and natural gas producer.
Wintershall. Shaping the future.