BASF and LetterOne to merge oil and gas units

BASF and LetterOne have signed a letter of intent to merge their oil and gas subsidiaries, Wintershall and DEA, to create one of Europe’s largest independent exploration and production companies.

The two companies first confirmed that they were in talks to merge Wintershall and DEA in November. The merged company will be known as Wintershall DEA. BASF and LetterOne plan to list the merged company in an initial public offering (IPO). Financial details of the merger have not been revealed, but analysts told The Financial Times that the deal is likely to be worth around €12bn, and the value of a potential IPO could be double that.

Wintershall is headquartered in Kassel, Germany and employs around 2,000 staff. It carries out exploration and production activities in Europe, Russia, South America, North Africa, and the Middle East. It also has a European gas transportation business with Gazprom. It had net sales of €2.8bn in 2016. It has estimated reserves of 1.6bn boe and produced 165m boe in 2016.

DEA, meanwhile, headquartered in Hamburg, Germany, has around 1,150 employees. It operates in Germany, Norway, Denmark, Egypt, Algeria and Mexico and has experience of the entire upstream value chain. It was formerly part of RWE before being bought by LetterOne. It had net sales of €1.5bn in 2016. It has estimated reserves of 483m boe and produced 50m boe in 2016.

BASF will hold a 67% share in Wintershall DEA, with LetterOne holding the remaining 33%, not including Wintershall’s gas transportation business. When the merger closes, the new Wintershall DEA will issue a mandatory convertible bond to BASF for the value of Wintershall’s gas transportation business. This will subsequently be converted into new shares in Wintershall DEA within three years of the deal closing, raising BASF’s share.

BASF will nominate the CEO and LetterOne will choose the deputy CEO. The new company is expected to be headquartered in Kassel and Hamburg, Germany.

A final deal is not absolutely confirmed, and BASF and LetterOne will now carry out due diligence and negotiations to determine definitive transaction agreements. The completion of the deal is expected to take place in the second half of 2018, subject to regulatory approval. Wintershall and DEA will operate as separate companies until then.