Jump in profits for Wintershall – burden on production in Russia

Wintershall is Germany’s largest oil and gas producer. In Germany, the company produces oil in Mittelplate in Schleswig-Holstein and Emlichheim in Lower Saxony, as well as gas in Völkersen near Bremen. In Völkersen, Wintershall produces around eleven percent of all German gas production. Compared to the group’s global gas portfolio, however, the field is very small.

Wintershall has recently benefited greatly from the high oil and gas prices worldwide and increased its operating result by 187 percent to 1.8 billion euros, as the Kassel-based company announced on Tuesday. Adjusted net income rose to 608 million euros, up from 168 million euros in the second quarter of 2021.

Wintershall desperately needs the good figures after losing billions in the first quarter. The company had to book impairments of 1.5 billion euros, on the one hand because of the financial participation in the gas pipeline Nord Stream 2, which is not allowed to go into operation, on the other hand because of company investments in Russia. If you add up the first two quarters, the loss for the first half of the year is 335 million euros, according to CFO Paul Smith.

“Nord Stream 1 fully operational”

The topic of Russia is also not yet over for Wintershall. The company is still producing gas in Siberia together with the Russian energy group Gazprom. Nothing about that will change anytime soon.

If we want to reduce our dependency on imports, production in the EU is a must. Wintershall boss Mario Mehren

Wintershall boss Mehren argues that one cannot simply give up the drilling sites in Russia, abandon employees and leave the platforms to the Russians. In addition, one does not want to “provide new excuses to certain people to further reduce gas supplies” by stopping gas production in Russia.

So Wintershall is currently suffering twice – both from the failed and from the existing deals with Russia.

95 percent of Wintershall’s business is based on oil and gas production, with Russia accounting for almost half of production in the 2021 financial year. Russian production contributed around 20 percent to Wintershall’s operating result in 2021 as a whole.

Wintershall is also literally connected to Russia via the Nord Stream 1 gas pipeline, in which the company has a 15.5 percent stake. Most recently, Russia delivered most of the gas to Germany through this pipeline. However, on Monday, Russia reduced gas supplies through the Nord Stream 1 pipeline to just 20 percent of the maximum possible amount.

Wintershall boss Mehren said about the sharp reduction in Russian gas deliveries to Germany that Nord Stream 1 is fully operational and technically capable of transporting the maximum capacity. Russia repeatedly argues that it cannot deliver the promised quantities due to broken turbines – according to many experts an excuse for supply reductions.

Additional gas from Norway

Wintershall’s activities in Russia are always in focus, they influence the market value of the company. In the current environment of the Ukraine war and the energy price crisis, this is a problem for the owners of Wintershall, who have been wanting to list the company for a long time.

Wintershall is currently 72.7 percent owned by the Dax group BASF and 27.3 percent by the Letter One investment group, which is backed by the Russian oligarch Mikhail Fridman.

In the case of an IPO, the question would arise as to how much Wintershall’s Russian business is still worth on the market, whether it is still worth anything at all. If Wintershall withdrew from it, the production facilities would possibly fall entirely to Russia.

The high income that the company generates from gas production around the world is helpful for Wintershall. The incentive to expand production is correspondingly high, especially since the demand for gas produced outside of Russia is higher than ever. Only on Monday did Russia reduce gas supplies through the Nord Stream 1 pipeline to just 20 percent of the maximum possible amount.

In the second quarter, Wintershall increased production by two percent to 623,000 barrels of oil equivalent (BOE) per day. Compared to the first quarter, it fell by seven percent. However, the group increased its target for the full year to 620,000 to 640,000 from 610,000 to 630,000 BOE per day.

In Norway, Wintershall wants to commission new gas fields earlier than planned. With Njord and Dvalin, two major projects are expected to start production in the fourth quarter. Wintershall has received approval for commissioning the so-called Nova project, and production is expected to start this summer.

>> Read also: Norwegian energy group Equinor: “We supply as much gas as possible”

However, this does not appear to be a long-term business model, after all, gas is only supposed to serve as a bridging technology on the way to a climate-friendly energy supply. Wintershall is already working on the first projects with new technologies. In Wilhelmshaven, the company is investing more than one billion euros in a hydrogen production plant together with project partners. The project, called BlueHyNow, is expected to generate a total of 5.6 terawatt hours (TWh) of energy per year. This corresponds to about three times the energy consumption of the Volkswagen plant in Wolfsburg in 2019.

However, it will probably be a long time before such technologies make up a significant part of Wintershall’s business. The project that has already been initiated in Wilhelmshaven should not supply hydrogen until 2028. By 2040, Wintershall wants to save 20 to 30 million tons of CO2 per year.

More: Uprising in several EU countries: ambassadors tear apart von der Leyen’s gas emergency plan.