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Wintershall continues to grow at the source
- Record earnings again at 1.2 billion euros
- Oil and gas production reach a new high
- Strategic partnerships expanded successfully
Germany's largest internationally active crude oil and natural gas producer, Wintershall, achieved record new figures in 2012. The company increased net income after taxes and minority interests by almost 13 percent to 1.2 (2011: 1.1) billion euros, thereby crossing the billion euro threshold for the second time running. Sales by the BASF subsidiary rose by 39 percent to 16.7 (2011: 12.1) billion euros. Wintershall also achieved a new production record in the company's over 100-year history, at 144 (2011: 113) million barrels of oil equivalent (boe). The significant increase in oil production in Libya and the expansion of natural gas production in Russia were key contributors to this new production record. Natural gas trading activities also contributed to the positive result. In 2012 the company was able to exceed the sales and earnings achieved the previous year in this segment. "The goal is to increase Wintershall's sales and earnings once again in 2013," the Chairman of the Board of Executive Directors, Rainer Seele, said. The company also intends to expand oil and gas production this year. The BASF subsidiary intends to increase production to at least 160 million boe by 2015.
"Our goal is the source. We will continue to grow, organically and with targeted acquisitions. We will continue to expand Wintershall internationally as the leading German oil and gas producer," Seele declared at the company's Annual Press Conference in Kassel: "We are continuing on our growth course, as the results from last year show." The groundwork for these results was laid with the asset swap agreements signed with Gazprom and Statoil in 2012, and the extremely successful discovery rate of 50 percent. Last year 10 of Wintershall's 20 exploration and appraisal wells proved the presence of new oil or gas deposits. The CEO named the oil discoveries Skarfjell in Norway and F17 in the Dutch North Sea as examples. New prospects are also currently opening up in Argentina, where Wintershall signed a gas price agreement with the government a few days ago which improves the economic conditions of developing unconventional gas reservoirs. "In addition, we are developing our activities in Abu Dhabi and Qatar to act as a catalyst for expanding in the core region the Middle East," Seele explained. Just recently the company verified the existence of a new gas field in Qatar.
Expansion of strategic partnerships
Wintershall's growth strategy is based on innovative technologies and targeted cooperation. In 2012 the company began collaborating with ADNOC, the state oil company of Abu Dhabi. Wintershall will evaluate the sour gas and condensate field Shuwaihat with up to three appraisal wells and 3D seismic surveys and draw up a development concept together with OMV. "For us this is an important step towards building up a greater presence in the Middle East," Seele declared.
Wintershall also signed an agreement on the acquisition of three producing fields in the Norwegian North Sea as part of an asset swap with Statoil. As Seele explained, "We are exchanging future potential for current production. The transaction improves our profitability and optimizes our business overall." Wintershall will receive shares in three producing fields Brage (32.7 percent), Gjøa (15 percent) und Vega (30 percent) from the Norwegian company Statoil as part of the asset swap. These fields have reserves (2P) of about 100 million boe. The companies also agreed that with Brage, Wintershall would take over the operatorship of a major production platform in Norway for the first time in October 2013, subject to the agreement of the authorities and partners. Wintershall Norge is raising its daily production from its current level of around 3,000 boe to almost 40,000 boe in 2013 with this transaction.
In return, Statoil will receive a 15 percent share in the development project Edvard Grieg from Wintershall and financial compensation of US $1.35 billion. An additional payment of up to 100 million US$ will be paid contingent on the successful future development of the Vega field.
"With the cooperation with Statoil, we are taking another big step forward in expanding our activities right at the source. This will allow Wintershall to become one of the leading producers in Norway and to balance out its global portfolio even more effectively," the Wintershall CEO explained. The company was also able to deepen the partnership with Statoil by signing, in November 2012, long-term natural gas supply agreements for marketing its own production from Norway. Moreover, the two companies agreed to conduct joint research activities to increase the oil yield (EOR - Enhanced Oil Recovery) and to examine the offshore application of the innovative technology "Schizophyllan" being developed by Wintershall and BASF. Wintershall and Statoil also wish to work together in the area of research into unconventional hydrocarbon deposits in Germany and internationally.
Wintershall was also able to further develop its cooperation with its long-standing partner Gazprom in 2012. As part of an asset swap, Wintershall will receive 25 percent plus one share in two additional blocks of the Achimov formation of the Urengoy field in West Siberia, subject to the approval of the authorities responsible, with the option of increasing its share in the two natural gas and condensate reservoirs in future. In the plateau phase, at least 8 billion cubic meters of gas per year are to be produced from the two blocks overall. The start of production is planned for 2016.
In return, Gazprom will receive Wintershall's share in the previously jointly run natural gas trading and storage business, as well as a 50 percent share in Wintershall Noordzee B.V. "With this move we are continuing to make progress with our joint production at the source," Seele said. "Even after 20 years, our partnership is constantly developing - and providing new momentum. That is good for both sides," the Wintershall CEO explained. "For us partnership means: we invest in Russia and Gazprom invests in Germany and Europe. Partnerships like this create trust and success."
Wintershall already has a 50 percent share in the development of block IA of the Achimov formation in the Urengoy field via the Achimgaz joint venture. The first production wells here began operations in November 2012 with the start of full field development. This doubled the average daily production from the pilot phase. The joint venture is currently developing from twelve wells. Production is expected to increase to an annual plateau of eight billion cubic meters by 2018.
Closer to the source worldwide
In addition to Europe and Russia, Germany's largest crude oil and natural gas company is active in South America, North Africa, the Caspian Sea region and, increasingly, the Middle East. The significant rise in production in 2012 is primarily due to the production of crude oil in Libya throughout the year. The operations there have been up and running again since mid-October 2011 - when Wintershall re-started production as one of the first producers to do so. Wintershall Libya is currently producing around 85,000 barrels of crude oil a day on average.
To ensure enough export capacities, together with the National Oil Corporation (NOC) and Agoco, Wintershall completed the construction of a new 52-kilometer-long oil pipeline. Seele described the pipeline as a symbolic project the company cared about deeply: "It is a significant piece of infrastructure right through the Libyan Desert. This pipeline construction is a premiere. For the first time, a foreign operator, Wintershall, is conducting and coordinating a pipeline project on behalf of the Libyan National Oil Company," the Wintershall CEO reported: "The message is clear. We are investing in Libya and are confident of our commitment to the country."
In South America, Wintershall is the fourth-largest gas producer in Argentina and has shares in 15 fields there. In the Neuquén Basin, three technology projects to investigate the shale gas potential have been launched. Wintershall Energía S.A. intends to invest a considerable sum in the country in the next few years. And in the middle of February 2013, gas price agreements were signed in Buenos Aires which aim to allow the development of unconventional gas reservoirs under attractive economic conditions. "That is the basis for strengthening our position on this important market in South America long-term," Seele explained.
Domestic production as a center of innovation
Wintershall also produces crude oil and natural gas in its homeland. Around 13 percent of demand for natural gas in Germany is currently covered by domestic reservoirs. Wintershall produces crude oil and natural gas in Germany as an operator all round Barnstorf in the district of Diepholz, in Emlichheim (county of Bentheim), in Landau in the Pfalz region and in Aitingen/Schwabmüchen near Augsburg. The production of natural resources in Germany is technologically demanding and often only possible with considerable additional expenditure and special techniques owing to the difficult geological conditions. However, this means that domestic production represents a center of innovation for new technologies for Wintershall.
There is particular interest internationally in the research project with the biopolymer Schizophyllan. The biopolymer produced by a domestic fungus thickens the water that is injected into the reservoir to enhance oil production. Experts expect this technology to allow an even more effective and environmentally sound use of mature oil fields. The research project is on the verge of a critical phase: at first the focus was on lab tests at BASF, but since December 2012, the company has been gathering the first practical experience with Schizophyllan in the north German oil field Bockstedt.
Wintershall is also working to secure natural gas production in Barnstorf for decades too: around 10 billion cubic meters of recoverable natural gas are presumed to exist in a so-called "tight gas" reservoir at a depth of over 4,000 meters. This can make an important contribution to a secure energy supply in Germany in future.
"We will need domestic natural gas in future too," Seele said. "Hence, we should examine very closely what potential is on offer to us in Germany in future - whether conventional or unconventional."
Estimates forecast that Germany could secure the proportion of energy it provides for itself today for another 100 years with unconventional resources such as shale gas, even by conservative estimates. Wintershall is taking part in the scientific exploration in two licenses in North Rhine-Westphalia to see whether production here is environmentally friendly and economically viable.
In this context Wintershall welcomes the current draft of the German federal government on the future deployment of hydraulic fracturing technology for shale gas. "We are ready to begin the research. But for that we need a reliable framework," Seele explained. "We are in favor of amending mining law if the objective is to allow E&P activities in Germany long-term."
Natural gas trading activities also report good figures
The natural gas trading as well as transport and storage segments of Wintershall reported good figures in 2012 and thus contributed to the company's success. The total sales of the three joint venture companies run jointly with Gazprom, WINGAS, WIEH and WIEE, increased to 471 billion kilowatt hours (2011: 417). The contribution to EBIT from natural gas trading, transport and storage rose to 482 (2011: 425) million euros last year. Higher contributions from the transport sector, owing to the first full year of operation of the OPAL pipeline, had a significant impact on the marked increase in earnings. The earnings of the trading business remained at the level of the previous year. A lower price level and weaker sales margins will presumably lead to a decline in sales and earnings in 2013.
Continued expansion of the European natural gas infrastructure
The gas storage activities were transferred to astora GmbH & Co. KG in 2012. Important assets in the storage portfolio are the largest natural gas storage facility in Western Europe in Rehden /Germany, and the share in the natural gas storage facility in Haidach in Austria. Work on the Jemgum natural gas storage facility in north Germany, part of which will begin operations in 2013, is progressing well.
One of the ways in which Wintershall contributes to a secure supply of natural gas is with its participation in the Nord Stream Baltic Sea pipeline, the second line of which was commissioned at the end of 2012, and the construction of the two connecting pipelines OPAL and NEL.
In addition to Nord Stream, the BASF subsidiary Wintershall has also taken on a share 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. From the end of 2015, the project partners plan to gradually start building the overall capacity of 63 billion cubic meters of natural gas a year.
"We expect the oil price in 2013 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 1.3 US dollars to the euro. Sales and earnings will presumably lie above the previous year's level, mostly due to the volumes sold ."
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.
 The sales and earnings forecast is based on the BASF Group segment structure in place until December 31, 2012. We have applied international accounting standards IFRS 10 and 11 since January 1, 2013. As a result, some companies which were previously fully consolidated and several which were proportionally consolidated will now be accounted for in the BASF Group Financial Statements using the equity method. In our forecast, we have applied the previous consolidation method in order to ensure comparability with the prior year. Overall, the application of IFRS 10 and 11 will lead to lower reported sales and income from operations. Net income will not be significantly influenced by the change in accounting standards. We will adjust the prior-year figures for future reporting periods. The qualitative statements made in our forecast remain valid.
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