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Wintershall set for further growthOil and gas production remain at high level in 2010. Global innovation: Wintershall develops organic mushroom for enhanced oil recovery. Gas trading subsidiary achieves stronger growth than the market again.

Kassel. Germany’s largest crude oil and natural gas producer plans to stay on its growth course of recent years. “We have laid the foundations for future growth by strengthening our technological expertise, making promising new discoveries in the North Sea and expanding our partnership with the world’s largest natural gas producer, Gazprom,” Rainer Seele, Chairman of the Board of Executive Directors of Wintershall, said at the company’s Annual Press Conference. The BASF subsidiary just recently signed Memorandums of Understanding with Gazprom to acquire a share in the South Stream natural gas pipeline and to develop two additional blocks of the Achimov formation in the Urengoy field in Siberia together. Based on initial analyses it is presumed that the gas production from the two new blocks can reach over eight billion cubic meters of natural gas a year. This would enable Wintershall to raise its natural gas production in Russia significantly once again. Wintershall was successful in 2010 with the expansion of its activities in Norway and the Middle East as well as with a new research project that is unique worldwide: Wintershall intends to considerably increase the oil yield from reservoirs in future with an organic mushroom. Overall the company was able to increase annual net income in 2010 by 211 to 923 million euros compared to the previous year. Both segments, oil and gas exploration and production as well as natural gas trading, contributed to the positive result. 

As Germany’s largest crude oil and natural gas producer, Wintershall is active in Europe, North Africa, South America, Russia and the Caspian Sea region as well as the Middle East, “And we are in competition with emerging countries that have high growth rates and are developing enormous appetites for energy and raw materials,” the Chairman of the Board of Executive Directors explained. “We are now facing an intensive race for raw materials, which also translates into a race to secure the future of our industry in Germany and Europe. Securing raw materials will become one of the key tasks of the future.” Oil and gas are and will remain the most important fossil fuels and raw materials for industry. “Recent developments will increase competition for energy raw materials even more and the upheaval in the Arab World as well as the catastrophe in Japan will not be without consequences for the global energy balance of the future,” Seele explained.

“But securing the energy supply in Germany and Europe does not come for free,” the Wintershall CEO said: “We must be able to secure raw materials worldwide but also continue producing oil and gas from domestic reserves profitably. Major infrastructure projects must be accepted by the society. And we need a climate that is open to innovation and technological progress – with no taboos!” Seele warned: “Because innovative technologies have to be based in the future in Germany.”

Securing raw materials worldwide 

Despite the current political instability in the region, Dr Seele said Wintershall was going to gradually build up operations in the Middle East. In 2010 the first well was sunk in the so-called Khuff formation in the western section Of the exploration block 4N in Qatar. In May 2010 a Memorandum was signed with the Abu Dhabi National Oil Company (ADNOC) in Abu Dhabi which paved the way for the long-term exploration and development of a deposit in the western region of the emirate for Wintershall. Wintershall’s strategy here, just as in other core regions, focuses on a combination of innovative production techniques and the latest exploration technologies. “We are staying in the Middle East region and continuing to vigorously pursue our E&P projects,” Seele underlined.

Wintershall is monitoring developments in Libya with great concern. Wintershall suspended and sealed off its production operations in the Libyan desert at the end of February 2011 for safety reasons. No oil has been produced there since. “It is difficult at the moment to gauge developments in Libya. Weare monitoring the situation very carefully and are looking after our Libyan employees in every way we can,” Dr. Seele said. The question of whether, when and how oil production can recommence in Libya was, however, still completely open, he added. 

In South America Wintershall has shares in 15 fields in Argentina; and the tight-gas development of the field Aguada Pichana Central West in the Neuquén Basin continued. In Chile exploration activities in two blocks near our existing production at Tierra del Fuego also progressed. 

Expansion of successful activities in the North Sea 

Overall 23 (2009: 29) exploration and appraisal wells were conducted in 2010 in the search for new crude oil and natural gas deposits. Wintershall discovered new resources with twelve of these wells (2009: 17); five in the Norwegian North Sea alone, and three in the British North Sea. “Our activities in Norway have an important position in our portfolio,” Dr Seele observed. Norway is one of the most important suppliers for Europe, alongside Russia, because of its major oil and gas deposits and the good connections to the West European markets. Wintershall is planning to continue the search for new reservoirs in its core regions in 2011 and to push ahead with the development of known deposits, especially in the North Sea in the coming years. The company has earmarked investments of more than one billion euros for this region by 2015 and is aiming for a production level of 50,000 BOE per day in the Norwegian and British sectors of the North Sea.

Securing domestic resources and innovation

Almost 15 percent of Germany’s gas requirements are currently met by domestic resources. Production also comes from unconventional reservoirs such as “tight gas” deposits where the gas in the reservoir rock has low mobility. “Germany also has valuable gas deposits that have not yet been developed, for example deposits containing shale gas,” the Wintershall Chairman underlined. The quantification of gas resources in unconventional deposits like these is, however, still in its infancy. The Federal Institute for Geosciences and Natural Resources (BGR) is currently examining the overall potential of shale gas in Germany on behalf of the German Economics Ministry. “Wintershall is also involved in this scientific exploration process and received permission from the relevant mining authorities in August 2010 to conduct geological investigations in two license areas,” Dr. Seele said. The Wintershall concessions “Rhineland” and “Ruhr” cover an area of 3,900 km² and stretch from the German-Dutch border in the West to the Sauerland region in the East.

“Our activities, however, are initially limited to preliminary geological surveys to assess the resource potential of possible unconventional deposits in these areas,” Dr Seele explained. Deep drilling or hydraulic fracturing activities are not planned.

“Producing from oil and gas fields in Germany is technologically very challenging because of the difficult geological conditions, and often only possible with considerable additional expenditure and special techniques,” Dr. Seele continued. Wintershall positions itself on the market with a combination of state-of-the-art technology and innovative production methods to improve the yield of increasingly complex reservoirs. “That makes Wintershall a sought-after partner in the industry,” he explained. The company now intends to strengthen its position even further with a new development from its own research: together with BASF, Wintershall is developing an organic fungus which can significantly improve the recovery rate from certain reservoirs. As Dr Seele said, “So far it has only been possible to recover and use about a third of the oil from a reservoir on average. With our biologically degradable biopolymer Schizophyllan it could be possible to tap into other oil reserves which have so far been trapped in the rock below the surface.” The fungus develops a biopolymer naturally; an organically produced thickening agent. The substance thickens the water which is injected into the deposit to enhance production. Since the water then no longer flows past the valuable raw material so easily, more oil is forced out of the deposit and the production rate rises. “We intend to produce much more oil in future this way, Dr. Seele affirmed. 

Oil and gas production remains at a high level in 2010 

Overall, despite the challenging environment, Wintershall almost matched the high level of crude oil and natural gas production of the previous year with 1331 (2009: 136) million barrels of oil equivalent (BOE). Wintershall already boosted natural gas production in 2010 – partly thanks to its production in Siberia – by 5 percent to its current level of 14.3 (2009: 13.6) billion cubic meters. Owing to OPEC production restrictions, however, crude oil and condensate production fell by 14 percent to 5.8 (2009: 6.8) million tons compared to 2009.

Natural gas sales rise 

In Wintershall’s second segment, natural gas trading, the German-Russian joint venture, WINGAS, in particular managed to maintain its strong position on the German and European natural gas market. With 317.9 (2009: 300.1) billion kilowatt hours (kWh) the company achieved a new sales record. In Germany WINGAS also increased sales thus growing at a higher rate than the market again. 

The overall sales of all three joint ventures operated with Gazprom (WINGAS, WIEH und WIEE) rose by a total of 6 percent compared to the previous year to 412.6 (2009: 387.7) billion kWh owing to the economic recovery and as a result of the cold weather in the winter months. Despite the increase in sales, turnover from sales to third parties fell by 537 million euros to 6.972 (2009: 7.509) billion euros as a result of lower prices. Profit from operating activities/EBIT from natural gas trading was 416 million euros – 92 million euros less than last year’s figure (2009:508). 

“In 2010 the energy market was shaped mainly by a surplus of natural gas on the European spot markets and a high degree of volatility in the energy prices,” the Wintershall CEO explained. “And although the general conditions of our business have changed substantially, we managed to keep our natural gas trading profitable in every quarter last year too.” 

Natural gas as a bridging technology

Natural gas in combination with renewable energies is playing an increasingly important role in the energy mix. “We were surprised to see that natural gas does not feature in the German’s government’s energy concept.” In contrast to nuclear and coal-fired power plants, gas-fired power stations can respond flexibly to fluctuations in electricity production from renewable energies. “The future belongs to renewable energies, and natural gas is certainly capable of building a bridge to this new era.”

The company is contributing to a secure supply of natural gas with its involvement in the Nord Stream Baltic Sea pipeline, amongst other projects. As well as Nord Stream the BASF subsidiary also intends to participate in the construction of the South Stream natural gas pipeline through the Black Sea. South Stream is designed to create a new transport path for Russian natural gas to south-east and southern Europe from 2015. This will give countries in south-east Europe a direct and reliable link to the gas reserves in Russia. By acquiring a stake in South Stream Wintershall will receive additional quantities of gas for its trading subsidiary Wintershall Erdgashandelshaus WIEE, which in turn will be able to build on its strong position in Bulgaria and Romania and tap into new markets in south-east Europe.

WINGAS is now one of the largest natural gas suppliers on the German market with a market share of almost 20 percent. But the company also supplies natural gas in France, Denmark, the Czech Republic, Austria, the Netherlands, and in particular Belgium and the UK. 43 percent of sales overall now comes from neighboring European countries. What’s more, this figure is set to rise. Alongside the markets in the UK and Belgium, the company is focusing on growing in the Netherlands. It laid the foundations for more growth at the end of 2010 by signing a long-term supply agreement with the Dutch energy supplier Eneco. From 2012 WINGAS will deliver up to one billion cubic meters of natural gas a year. The supply agreement between WINGAS and Eneco extends until 2030. 

Expanding the infrastructure 

The Nord Stream Baltic Sea pipeline is scheduled to deliver the first gas to Europe from October 2011. The natural gas, which arrives in Lubmin on the Baltic Sea coast, will continue its journey to customers in western and central Europe via the two connecting pipelines OPAL (Ostsee-Pipeline- Anbindungs-Leitung - Baltic Sea Pipeline Link) and from 2012 NEL (Nordeuropäische Erdgasleitung North European Gas Pipeline). These pipelines are being realized primarily by companies in the WINGAS Group. Construction work for OPAL is on schedule and will be complete as soon as June. NEL is scheduled to be completed at the end of 2012 together with the second line of the Nord Stream pipeline. Construction of the pipeline began in the middle of March. WINGAS and its subsidiaries plan to invest around 600 million euros in pipeline construction and the expansion of storage facilities in 2011. 

The cavern storage facility Jemgum is currently being built on the German- Dutch border. The WINGAS storage facility will have a capacity of more than one billion cubic meters of natural gas and is scheduled to come on stream in 2013. The first six wells for developing the cavern were drilled successfully in 2010. WINGAS is cooperating with EWE Aktiengesellschaft (Oldenburg) for the construction of the cavern storage facility as well as Verbundnetz Gas AG from Leipzig, which is bearing the investment costs for a sixth of the capacities. The companies plan to connect the storage facility to the Dutch pipeline network via the grid node Bunde/Oude Statenzjil. The construction of the connecting pipeline for this is planned for 2012.

At the Haidach storage facility in Austria the second stage of construction has already been carried out. The storage facility now has double the capacity – for 2.4 billion cubic meters of natural gas. All the permits for the natural gas storage facility in Saltfleetby in the UK have now been granted. The final investment decision will follow in the course of the year. 

Results and future perspectives

Sales to third parties of the group in 2010 decreased by 565 million euros to 10.791 (2009: 11.356) billion euros primarily because of the low gas price on the European market. The annual net income after third-party shares increased overall by 211 million to 923 (2009: 712) million euros. As Dr. Seele said, “This year we are expecting a higher average oil price than the year before. Based on these assumptions we aim for a significant increase in sales and a substantial improvement in earnings.” Wintershall plans to maintain the high level of sales in gas trading. “Our flexible portfolio allows us a quick response to the changes in the market and we will be able to look back on a profitable gas sector in 2011 too,” Dr Seele 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 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.

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 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.

Contact: Michael Sasse

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