Dusseldorf The oil and gas company Wintershall Dea slipped deep into the red at the beginning of the year due to a multi-billion write-down on the Baltic Sea pipeline Nord Stream 2. A net loss of one billion euros was incurred in the first quarter, after a profit of 161 million euros a year ago, as the company announced on Thursday.
Wintershall Dea recorded impairments totaling around 1.5 billion euros related to the financing of Nord Stream 2 and its Russian business. Operationally, however, things went well: Wintershall Dea increased production by two percent to 669,000 barrels of oil equivalent (BOE) per day. Adjusted operating profit increased to 1.84 billion euros from 704 million euros in the same period last year.
However, the strong growth is not only related to the recent sharp rise in energy prices. Due to the low oil and gas prices at the time, Wintershall Dea’s adjusted net profit in the 2020 financial year was very low.
Wintershall’s business in Russia is currently a particular focus: the company is one of Gazprom’s closest partners in the West. In Siberia, both groups produce gas with a joint venture, and Wintershall also produces oil in Russia.
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Wintershall announced at the beginning of March that it was not pursuing any additional gas and oil production projects in Russia and was halting all planning for new projects. In addition, payments to Russia were basically stopped with immediate effect. However, Wintershall will remain represented in the existing Russian natural gas production projects called Yuzhno-Russkoye and Achimov in Siberia until further notice. The production projects supplied natural gas and supplied Europe with energy, it is said to be the justification.
Great doubts about the lucrative business in Russia
Markus Mayer, chemical analyst at Baader Bank, says: “So far, Wintershall’s business in Russia has continued as normal. Wintershall sells the gas from its Russian gas fields to Gazprom, and Gazprom sells it on, including to Germany.”
According to Mayer, the business in Russia is theoretically very valuable for Wintershall at the moment, because oil and gas prices are very high, which brings in high revenues for the company, which generates 48 percent of its production in Russia.
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At an oil price of around $100 a barrel, as it is currently, Wintershall would be worth €20 billion to its parent company, BASF, according to Mayer. Wintershall is 72.7 percent owned by the Dax group BASF and 27.3 percent by the Letter One investment group, which was previously controlled by the sanctioned Russian oligarch Mikhail Friedman.
If you extrapolate the valuation, Wintershall should theoretically be worth 28 billion euros on the market for current energy travel. But only in theory, because in practice observers are wondering how long the Russian business can continue. At least the thought that Wintershall has to part with the lucrative business in Russia seems to be in the air.
After all, the parent company BASF announced on Wednesday that it would stop its activities in Russia and Belarus, with the exception of the business supporting food production, because of the Ukraine war.
Low dividend, back sleep for stock market plans
Wintershall reduced the dividend for the past financial year to the legal minimum of six million euros. “This also shows that you want to play it safe and have a liquidity cushion in case Wintershall loses its Russian assets,” says Mayer.
“So far, BASF has continued to do business with Russia in every crisis. But the current situation has a new quality,” says Mayer. On the market, the value of Wintershall’s Russia assets is currently seen as zero. This means that Wintershall is worth less than ten billion euros on the market.
The valuation is also an issue because BASF has actually been aiming for a long time to list Wintershall on the stock exchange. In the current situation, however, this plan has become a long way off. “In the current environment, I see the probability of Wintershall going public at a maximum of five percent,” says Mayer.
At the same time, the analyst suspects that BASF wants to continue Wintershall’s business in Russia as long as it can. If Wintershall, Russia’s most important German partner in the gas sector, pulls out, that will have great symbolic power. And Germany has so far been heavily dependent on Russian gas.
According to Mayer, however, it would be conceivable for BASF to take back gas pipelines that the company previously owned and which went to Gazprom Germania as part of an asset swap. Most recently, the federal government took over the Gazprom subsidiary Gazprom Germania in trust. Mayer thinks it is possible that BASF and Wintershall make a deal with Gazprom Germania and get the pipelines back and give up the gas fields in Russia in return.
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