Wintershall with record profitOil and gas producer achieves annual net income of over one billion euros. Activities in the North Sea and Russia expanded. Natural gas trading segment profitable.
Kassel. Germany’s largest producer of crude oil and natural gas with operations worldwide, Wintershall, passed the billion euro mark with its annual net income for the first time in the company’s over 100-year history. With an increase in sales of twelve percent to 12.1 billion euros (2010: 10.8), the after-tax profit of the BASF subsidiary rose by 15 percent to 1.1 billion euros (2010: 0.9). Owing to the lower contribution from Libya, however, EBIT (earnings before interest and tax) fell by 10 percent to 2.1 billion euros (2010: 2.3). “Our result for the year shows that with our company’s focus on core regions combined with partnerships and technologies, we are on the right track,” Rainer Seele, Chairman of the Board of Executive Di-rectors at Wintershall, explained at the company’s Annual Press Conference in Kassel. The company plans further growth in the coming years with the already agreed expansion of its production operations in Siberia, which it runs together with the Russian gas producer OAO Gazprom, and the development of new reserves discovered in the North Sea. Wintershall also intends to step up its activities in the Arab region significantly. Both business segments, the exploration and production of oil and gas, as well as natural gas trading, contributed to the good result in 2011. “The oil market is currently undergoing an enormous stress test. Not least the sanctions imposed on Iran and the tense political situation have driven the oil price up even further,” Seele told journalists in Kassel. This showed that the oil price was still an indicator of the global political and economic mood, he said. The economy would remain dependent on crude oil for a long time, Seele underlined, adding that the energy hunger of the emerging nations was already offsetting all the energy saving measures in the rest of the world. “Hence, we are expecting oil demand to rise until 2035.” The current situation on the energy markets was making it generally clear that Europe needs to step up its efforts in developing new sources and securing transport paths. “In Europe we must learn to position ourselves better in the major production regions of the world,” Seele said. “That also means expanding existing partnerships.” The example of Germany and Russia showed how successful such partnerships can be – especially in natural gas trading, Seele added. Russia had also been Germany’s most important oil supplier for 20 years. “With our successful joint natural gas projects along the entire value added chain, the partnership between Gazprom and Wintershall undoubtedly represents a blueprint for cross-border cooperation in the energy sector,” Dr. Seele explained.
Securing raw materials worldwide
As a crude oil and natural gas company, Wintershall is also active in South America, North Africa, the Caspian Sea and increasingly in the Middle East, in addition to Europe and Russia. Despite the current political uncertainties, Wintershall wants to step up its activities particularly in the Middle East region. As well as increasing production in Libya, the company also wants to develop new natural gas reserves off the coast of Qatar and in the United Arab Emirates. “The Arab region beyond North Africa has so far been virtually off the map for German oil and gas companies. Yet the Gulf States are dominant on the global market in terms of reserves,” the Wintershall CEO explained to journalists in Kassel. Hence, German companies had to strengthen their presence in the region, he said. “We have the know-how and the technology to present ourselves as an attractive partner there,” Seele explained. In 2010 Wintershall already opened a branch office in Abu Dhabi, one of the most important centers of the oil and gas industry in the Gulf region, and was the first German E&P company to do so.
“Wintershall’s activities in Libya are a prime example of our commitment to North Africa and the Middle East,” Seele continued. Production operations on land were suspended in February 2011 and offshore in March 2011 as a result of the unrest. They were re-started in September and October last year. “Together with our Libyan staff last year we overcame the uncertainties. We secured, maintained and kept our facilities in Libya in good working order and were able to return there more quickly than others as soon as circumstances allowed us to. Thanks to the efforts of our colleagues there, we were able to restart production in concessions 96 and 97 in the desert quickly,” Seele emphasized. At the end of 2011 the average daily production rate onshore was already 60,000 barrels per day. “We are aiming to reach maximum capacity utilization again as quickly as possible,” Seele explained.
In South America Wintershall has stakes in 15 fields in Argentina. In the Neuquén Basin three technology projects were launched to examine the shale gas potential. Wintershall is expanding its activities in South America – where is has been active since 1978 – with its stake in two blocks in Chile. The company also operates off the coast of Tierra del Fuego on the most southerly platform in the world together with its partners.
Supply security in Europe
Wintershall is active in the exploration and production of oil and gas worldwide, but Europe and the neighboring production regions remains its core region. “Our largest investment projects are still in Norway and Russia,” Seele explained. “We want to significantly increase oil and gas production in the coming years based on these projects.” In the coming years the company will invest 150 million euros a year in the search for new reserves in the northern North Sea alone. Hence, including the development of the fields discovered, Wintershall plans to invest up to two billion euros in Nor-way and the UK. “In Norway we have a portfolio of over 40 licenses, and Wintershall is the operator in more than 20 projects,” the Wintershall CEO explained. “We are confident of the quality of our projects and have thus set an ambitious target for the northern North Sea: we aim to raise our daily production on the Norwegian and British continental shelf from its current level of around 4,000 barrels to 50,000 barrels of oil equivalent (BOE).” Consequently, the two oil fields Knarr and Luno are already in various stages of field development, and the company was able to increase its share in the very promising Maria discovery from 25 to 50 percent. In the Catcher field off the coast of Scotland, three exploration and appraisal wells were sunk in 2011.
In October 2011 the company started its first own-operated natural gas production platform in the southern British North Sea with the Wingate platform. The basic production is 1.5 million cubic meters of natural gas per day initially. The company aims to double the production rate to three million cubic meters of natural gas per day with a second well. This would be enough to supply around 400,000 households with gas. With its investments of more than 50 million euros in the Wingate project, Wintershall is sending a clear signal about its commitment to the future of exploration in the southern North Sea. With an annual production of around one billion cubic meters, Wintershall is one of the largest natural gas producers in this region.
Russia is essential
In 2011 the BASF subsidiary also laid the foundations for further growth in Russia: a framework agreement was signed with Gazprom with the intention to develop two further blocks of the Achimov formation in the Urengoy gas field in west Siberia together. “According to the agreement, Wintershall will initially receive a 25 percent share in blocks IV and V, with the option of increasing to 50 percent at a later date,” Seele said. The Memorandum of Understanding also states that Gazprom will receive shareholdings of equal value in Wintershall exploration and production projects in the North Sea in return. Commercial development for the reservoir 1A in the formation, from which the joint venture Achimgaz (50% Gazprom / 50% Wintershall) has been producing since 2008, began last year. “We are currently producing more than one billion cubic meters a year from six pilot wells there. In the medium term we want to increase production to an annual level of eight billion cubic meters.”
Overall, 21 exploration and appraisal projects (2010: 23) were completed in 2011 in the search for new crude oil and natural gas reserves. Wintershall discovered new resources in 10 wells (2010: 12).
Securing domestic raw materials and innovation
Around 14 percent of natural gas requirements in Germany are currently met by domestic reserves. Production also comes from tight gas reserves, where the gas in the reservoir rock has a low mobility. “Germany also has additional, as yet undeveloped, potential, for example in shale gas,” the Wintershall CEO emphasized. “However, we are more conservative in our estimations than others. Having said that, domestic producers also have the responsibility to explore all the potential here in Germany,” Seele said. “Hence, Wintershall is also taking part in this exploration process.” The Wintershall concessions “Rhineland” and “Ruhr” extend over an area of 3,900 square kilometers and stretch from the German-Dutch border in the west to the Sauerland region in the east.
“Our activities are limited to preliminary geological surveys to assess the resource potential of possible unconventional deposits in these areas,” Seele explained. Deep drilling or fracing operations were not planned, he said. “Raw materials production in Germany is technologically demanding and often only possible with considerable additional expenditure and special techniques,” 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 tight gas technology from Germany, as used for the project Düste Z10 in Barnstorf, is also applied by Wintershall in Russia and Argentina. This technology belongs to the time-tested standard repertoire of Wintershall. “And it opens up new possibilities for Germany too,” Seele added.
Oil production negatively affected by events in Libya in 2011
Wintershall’s oil and gas production fell by 15 percent to 1131 million BOE in 2011 primarily owing to the suspension of production in Libya for several months. In 2010 the company produced 133 million BOE. Wintershall was able to keep natural gas production constant to a large extent at about 88 million BOE. In 2012 production is expected to rise again, partly as a result of the situation in Libya becoming more stable again. Oil production was already stabilized at 60,000 barrels per day. The company’s confirmed oil and gas reserves increased on the figure at the end of 2010 by three percent to 1,156 million BOE. This rise is mainly due to the volumes from the Achimgaz project being included for the first time, where the commercial development of the field began following the successful conclusion of the pilot phase. The total reserve-to-production ratio, which is based on Wintershall’s share of production in 2011 and refers to the reserves at year end, is 11 years (2010: 10 years). 131 % of the quantities produced in 2011 were replenished. For 2012 Wintershall expects its production volumes to rise as a result of the situation in Libya stabilizing, and thus anticipates a significant improvement in sales and earnings in the exploration & production segment.
Natural gas sales grow
Wintershall also achieved positive results in its second business segment, natural gas trading. “Despite the difficult market environment with mild winter temperatures and higher competitive pressure, the results in 2011 remained at the level of the previous year,” the Wintershall CEO explained. The overall sales of all three joint ventures operated with Gazprom (WINGAS, WIEH and WIEE) rose by one percent on the previous year to 417 billion kilowatt hours. EBIT from Wintershall’s natural gas activities rose from 416 million euros in 2010 to 425 million euros last year. Wintershall wants to increase the natural gas trading sales volume in 2012 too, despite the continued intense competitive pressure. However, owing to the continuing pressure on margins, the company anticipates a decline in earnings despite significantly higher sales.
The largest joint venture operated together with Gazprom, WINGAS, is now one of the largest natural gas suppliers on the German market with a market share of about 20 percent. The company is also active as a natural gas supplier in France, Denmark, the Czech Republic, Austria, the Nether-lands, and especially in Belgium and the UK. About 45 percent of the overall gas sales volume is now generated in the neighboring European countries. The company plans to increase this figure further. In addition to the markets in the UK and Belgium, the company aims to achieve above-average growth in the Netherlands. In 2011 WINGAS achieved a sales volume of 305 billion kilowatt hours (kWh), down from 318 billion in the previous year. This decrease of four percent is, however, much smaller than the overall decline in natural gas consumption in Europe (EU-27) of ten percent.
Wintershall is also contributing to a secure supply of natural gas by participating in the Nord Stream Baltic Sea Pipeline, the first line of which was commissioned at the end of 2011, and the construction of the two connecting pipelines in Germany OPAL (in operation) and NEL (under construction). In addition to Nord Stream, the BASF subsidiary also plans to take part in the construction of the offshore part of the South Stream pipeline through the Black Sea – a declaration to this effect was signed with Gazprom in 2011. The aim of the South Stream project is to create a new transport route for
Russian natural gas to south and south-east Europe at the end of 2015. “The bottleneck situation we experienced a few weeks ago alone showed that we need to step up our efforts for a new level of supply security. That is why Wintershall is participating in the South Stream project,” he explained. This pipeline project will give south-east European countries a direct and reliable link to the gas sources in Russia. A feasibility study for the billion-euro project has already been started. The investment decision is scheduled to be taken by the end of 2012 on the basis of this, Seele explained. “I am confident that we will remain on schedule both for Nord Stream and South Stream.” By participating in South Stream Wintershall will receive additional gas volumes for the trading subsidiary Wintershall Erdgashandelshaus WIEE, which will enable it to expand its position in Bulgaria and Romania and develop new markets in south-east Europe.
“For the year 2012 we anticipate that the oil price will remain at the level of the previous year,” Seele said. “Based on this assumption, and owing to the resumption of crude oil production in Libya at the end of 2011, we expect sales and earnings to rise,” the Wintershall CEO explained.
1 This includes the shares of third parties which are attributable to Gazprom’s interest in the German Wintershall company which holds the Libyan concessions 96 and 97. Production volumes from the west Siberian Achimgaz project are included from 18 November 2011 when the project entered commercial production.
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 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, North Africa, South America, as well as Russia and the Caspian Sea region. In addition, these operations are complemented by the company’s growing exploration activities in the Arabian Gulf. Today, the company employs more than 2,000 staff worldwide from 35 nations and is now Germany’s largest crude oil and natural gas producer. With the natural gas trading and transport subsidiaries it operates together with Russia’s Gazprom, the BASF subsidiary is also an important gas supplier on the German and European market.
Wintershall. Shaping the Future.