Wintershall on growth course despite financial crisisOil and gas production increase again / Russian projects make key contribution to success / Natural gas trading subsidiary WINGAS maintains record sales
Kassel. Germany largest, internationally active crude oil and natural gas producer remains on growth course in a generally weaker economic envi-ronment: in 2009 Wintershall managed to increase oil and gas production to 1361 (2008: 130) million barrels of oil equivalent (BOE), a 70 percent increase on the figure for the year 2000 of 80 million barrels of oil equiva-lent. At the same time, the company also secured a long-term rise in pro-duction by expanding the company’s reserves. In the second segment, natural gas trading, WINGAS was not only able to match its record sales in 2008 last year; it even managed a slight increase in sales despite the gen-eral decline in the market. Overall, WINGAS has tripled its natural gas sales since 2000. “Wintershall will be synonymous with growth in the next decade too. We have already laid the foundations for further growth,” Dr. Rainer Seele, Chairman of the Board of Executive Directors of Wintershall, announced on Thursday (18.03.2010) at the company’s Annual Press Conference in Kassel. “Norway and Russia play a key role in Europe’s future supply of energy. And this is exactly where we are applying our strengths.” As such, following the substantial rise in production in recent years, Wintershall aims to further increase the production of crude oil and natural gas to 140 million barrels of oil equivalent by the end of 2010.
Following the acquisition of Revus Energy ASA, Wintershall is now one of the largest license holders in Norway with around 50 licenses; and the op-erator in 19. This paves the way for further growth in the North Sea. “We already discovered significant deposits off the coast of Norway with our first operated exploration well “Grosbeak”. Additional wells with partners have proven the existence of more oil and gas,” the Wintershall Chairman explained. Wintershall is also open to new projects in Russia. “Our suc-cessful gas production operations with Gazprom, for example, the Achim-gaz project in Siberia, provide a solid basis for further activities in Russia.” Dr Seele explained that the combination of state-of-the-art technology and innovative production methods for improving the yield of increasingly com-plex deposits is a strength that Wintershall has built on successfully. That makes Wintershall a sought-after partner in the global race for resources. ”We will continue to invest all our efforts in finding new fields in the future so that we can continue to grow and expand our activities in our core re-gions,” Dr. Seele declared. Overall, Wintershall completed 29 (2008: 16) exploration and appraisal wells in 2009 in its search for new crude oil and natural gas deposits. In 17 (2008: 5) of these wells Wintershall identified new deposits, four in Norway, six in the southern North Sea (the Nether-lands, UK, Denmark) as well as two in Argentina, three in Germany and two in North Africa. Wintershall plans to step up its search for new deposits in its core regions in 2010 too and to forge ahead with the development of known deposits, especially in the North Sea and Norway, in the next few years.
Exploration and production increased worldwide
Wintershall’s activities in Russia made a key contribution to the company’s commercial success in 2009 too. The increase in Wintershall’s total pro-duction by four percent last year is primarily due to the German-Russian cooperation in western Siberia. “The Yuzhno Russkoye field in western Siberia reached plateau production sooner than planned in the middle of last year. Wintershall has a 35% share in the field’s commercial success via Severneftegazprom. All 142 production wells are in operation,” Dr Seele explained. The second joint natural gas production project, the de-velopment of a sub-section of the deep-lying Achimov horizon in the Uren-goy field, in which we have a 50 percent share, is operating successfully: all six planned pilot wells were launched successfully in the technically challenging deposit near Novy Urengoy.
In addition to the increase in production in Russia, in 2009 the company concentrated on expanding its activities in Norway. The opening of the headquarters of Wintershall Norge in Stavanger represents another step in the implementation of the strategy to become one of the most important operators on the Norwegian continental shelf. “Alongside Russia, Norway is Europe’s most important supplier because of its large oil and gas re-serves and its existing links to western European markets,” Dr Seele ex-plained.
Platform E18-A in the Dutch sector of the North Sea started production much earlier than planned. The Ravn-3 appraisal well in the western part of the Danish North Sea confirmed the presence of oil. In order to further improve the efficiency of its operations in the southern section of the North Sea, Wintershall now controls 19 of its 26 offshore platforms centrally from land – via one of the most modern radio surveillance systems in the world. In addition to its oil and gas production in the North Sea, Wintershall con-tinues to invest in crude oil production in Germany. In 2009 Wintershall was acclaimed for its innovative crude oil production methods in Emlich-heim in Lower Saxony by the Initiative “Germany – Land of Ideas”. The company applies steam-flooding technology there in order to produce the very viscous oil.
In Argentina, Wintershall Energía S.A., a wholly owned subsidiary of Win-tershall, has working interests in 15 oil and gas fields and, with an annual production of about 25 million barrels of oil equivalent, it is one of the larg-est natural gas producers in the country. Wintershall also expanded its activities in Argentina: in 2009 Wintershall Energía and its partners signed for the Aguada Pichana and San Roque concession by 10 years until 2027. The first horizontal production wells are currently being drilled for the tight gas development of the Aguada Pichana Central-West field. Since March 2010 Wintershall has also held working interests in two exploration blocks in the south of Chile. The two blocks cover a total surface area of 12,000 square kilometers and are situated near the southernmost natural gas platform in the world which Wintershall operates off the coast of Tierra del Fuego together with French company TOTAL and PanAmerican En-ergy (PAE).
In Libya, where Wintershall has been producing crude oil since 1958, the company’s exploration activities were extended to the south of the country in the Kufra basin. Wintershall is prospecting for new oil and gas reserves there. The expansion of existing onshore fields continued and the company started with the development of new oil discoveries. Wintershall is also increasingly active on the Arabian Peninsula: in Qatar the first exploration well in the Khuff formation of Block 4N is scheduled to take place in 2010. This block is located close to the so-called ‘North Field’, the largest natural gas field in the world. In addition, Wintershall opened its own representa-tion in Abu Dhabi.
Substantial rise in production quantities
In 2009 Wintershall managed to increase the production of crude oil and natural gas to 1361 million barrels of oil equivalent, which is 4 percent above the high level in 2008. Although crude oil and condensate produc-tion decreased by twelve percent to 6.8 (2008: 7.7) million tons compared to 2008, natural gas production increased by 18 percent in 2009 to 13.6 (2008: 11.6) billion cubic meters. Lower OPEC quotas and the natural de-cline in production from older fields led to the decreasing production quan-tities for oil.
The increase in natural gas production was due to the field Yuzhno Russ-koye reaching plateau production earlier than planned. Wintershall’s total reserve-to-production ratio is 10 years. This is based on Wintershall’s share of production in 2009 and refers to the reserves at year end. The reserves from the Achimgaz project are not included here due to contrac-tual provisions.
Natural gas sales increase against the odds
In Wintershall’s second segment, natural gas trading, the largest German-Russian joint venture, WINGAS, managed to maintain its strong position on the German and European natural gas market – despite the fall in de-mand for energy due to the generally weaker economic environment. In particular sales outside Germany and trading on the spot markets in-creased. The resulting growth in volumes sold was almost able to offset the slight decrease in sales in Germany triggered by the economic down-turn: WINGAS even managed to achieve a slight increase in sales to 300.1 (2008: 298.4) billion kilowatt hours – thereby matching the record perform-ance in 2008. In 2009 the total sales of all three joint ventures with Gaz-prom (WINGAS, WIEH und WIEE) recorded just a slight fall of 7 percent to 387.7 (2008: 417) billion kilowatt hours. The sales markets in Romania and Bulgaria in particular were badly affected by the financial and economic crisis.
In Germany WINGAS closed contracts worth about 37 billion kilowatt hours with resellers, utilities and industrial customers in 2009. It acquired 15 new customers, extended 16 existing contracts and agreed on other additional quantities. WINGAS also continued to grow in Europe, and was particularly successful in acquiring new customers and increasing sales in Belgium and the UK. WINGAS won its first customers in the resellers segment in Belgium and is well on the way to achieving a market share of 10 percent there. The company is also supplying its first customers in the Netherlands and was able to expand its activities in France, Denmark, and the Czech Republic. It generated about 10 percent of its sales with companies in the BASF Group.
Wintershall remains on course to expand infrastructure
Wintershall is determined to stay on course with its investment projects despite the difficult general conditions. The start of construction of the Nord Stream pipeline from Russia through the Baltic Sea to the German coast, which is planned for April, and the connecting onshore projects will streng-then the integration of the infrastructure considerably. The additional natu-ral gas transported to Europe via the Nord Stream project will decrease the transit risk and improve supply security on a lasting basis. Nord Stream AG, in which Wintershall has a 20 percent share, has forged ahead with the preparations for the pipeline’s construction and has now concluded the required authorization procedures in all the countries affected – Denmark, Sweden, Russia, Germany and Finland.
The successful conclusion of the planning approval process in the south-ern part of Brandenburg means that permits for the OPAL connecting pipe-line in the states Mecklenburg-Vorpommern, Brandenburg and Saxony have now been granted. The construction of the OPAL in the states Saxo-ny and Mecklenburg-Vorpommern already began in late summer. The top-soil has been removed from nearly 190 kilometers of the pipeline track; over 50 kilometers of pipes have been welded and more than 30 kilome-ters of the pipeline string have already been laid. In the meantime, con-struction work has also begun in Brandenburg. The second connecting pipeline for Nord Stream, the NEL, which runs from Mecklenburg-Vorpommern to Lower Saxony, is currently in the planning approval proc-ess. WINGAS and its subsidiaries invested around 300 million euros in the expanding the pipeline and storage infrastructure last year. In 2010 this figure is set to rise to almost 600 million euros.
Wintershall’s growth strategy for natural gas trading is reinforced by its construction of additional storage capacities. While the Saltfleetby natural gas storage facility in the UK is still going through the approval process, in Jemgum in northern Germany drilling for the new cavern storage facility has begun. WINGAS is cooperating with EWE Aktiengesellschaft (Olden-burg) in the ongoing planning and permitting process for the cavern stor-age facility. EWE and WINGAS plan to build 33 caverns overall in the salt dome in Jemgum in the next few years. The second phase of construction is already underway at the Haidach storage facility in Austria. From 2011 the natural gas storage facility operated by Austrian company RAG will then be able to store 2.4 billion cubic meters of natural gas.
Oil price stabilizes
2008 was a turbulent year in which the crude oil price reached an all-time high of over 140 US dollars per barrel (159 liters) in July, followed by a slump in demand which saw the price for crude oil plummet to less than 40 US dollars. In the meantime the average nominal price for the benchmark crude oil Brent has stabilized at between 70 to 80 dollars per barrel. How-ever, the average nominal price in 2009 of about 62 US dollars per barrel was around 36 US dollars/barrel or 37 percent below the corresponding value from the year before, which had been influenced by the all-time high in 2008. With the US dollar recovering against the euro, the figure in euros represented a fall of 22 euros per barrel or 33 percent, to around 44 eu-ros/barrel.
Owing to the several-month delay in the alignment of selling prices for nat-ural gas to changes in the oil price, which is related to contractual provi-sions, in the first half of 2009 natural gas trading was still profiting from the high oil prices in the middle of 2008. This was able to limit the impact of the substantial fall in price on the spot markets in the second half of the year as well as the losses due to reduced quantities.
Figures fall as a result of oil prices
Due to the heavy fall in prices, sales of the Wintershall Group decreased by 3.089 billion euros (-21.4 percent)2 to 11,356 billion euros compared to the record figures in 2008 (2008: 14.445). Of this figure, 3.847 (2008: 5.308) billion euros (-27.5 percent) were generated by the exploration and production segment. Sales (excluding natural gas levies) to third parties in the natural gas trading segment amounted to 7.509 (2008: 9.137) billion euros (-17.8 percent).
Profit from operating activities (EBIT) fell by 1.555 billion euros (-40.5 per-cent) to 2.289 (2008: 3.844) billion euros. Of this figure 1.781 (2008: 3.319) billion euros3 were generated by the exploration and production segment (-46.3 percent). This fall was cushioned by the delayed alignment of selling prices to the oil price (the so-called “time-lag effect”) in the first half of 2009. The natural gas trading sector contributed 508 (2008: 525) million euros (-3.2 percent).
A look to the future
Based on the development of the global economy, the BASF subsidiary Wintershall anticipates that the oil price will stabilize at a higher level in 2010 compared to the average nominal price of the previous year. The company’s planning activities are based on an oil price of 75 US dollars per barrel and an exchange rate of 1.4 US dollars per euro on average in 2010. Consequently, overall the company expects the results to stabilize at a high level. “Despite the challenging conditions on the European natural gas market at present, we will master the forthcoming ventures and our future strategic projects with enormous strength and great personal com-mitment and pursue our growth targets with steadfast resolution,” the Win-tershall Chairman underlined.
1 This includes the shares of third parties which are attributable to Gazprom’s interest in a German subsidiary which holds the Libyan concessions 96 and 97. The volumes from the Achimgaz project are not included here. The 50/50 Joint Venture Achimgaz produced 9.2 million BOE in 2009.
2 Figures correspond to those reported for the BASF Group Oil & Gas Segment.
3 The results of 2009 include € 870 million (2008: € 1,851 million) from income taxes on oil production in North Africa that are non-compensable with German corporate income taxes. These taxes are reported as income taxes. Negotiations are currently being conducted with the Libyan state oil company on converting the existing concession agreements into “Explo-ration and Production Sharing Agreements” (EPSA).
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 Holding GmbH, based in Kassel, Germany, is a wholly-owned sub-sidiary of BASF in Ludwigshafen. The company has been active in the exploration and production of crude oil and natural gas for over 75 years. Wintershall 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. Today, the company is Germany’s largest crude oil and natural gas producer and with its subsidiaries, WINGAS and WINGAS TRANSPORT, it is also an important gas supplier on the German and European market.
Wintershall. Shaping the future.
More information, background reports and photographic material on the annual press event are available on the Internet at www.wintershall.com.