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    BASF 2017 Profits Buoyed by Upstream


German chemicals giant BASF, owner of Wintershall, gained from higher oil and gas prices and confirmed it has paid out a third of its NS2 funding commitment.

by: Mark Smedley

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BASF 2017 Profits Buoyed by Upstream

German chemicals giant BASF, owner of oil and gas firm Wintershall, said February 27 that full year earnings were positively impacted by higher oil and gas prices. It also confirmed having paid out a third of its funding commitment to Nord Stream 2.

Plans to merge Wintershall and LetterOne-owned DEA, announced 2017, into a joint venture in which BASF initially retains 67% control is still on track to close 2H2018 – but BASF repeated that “there is no assurance we will reach an agreement with LetterOne.”

As well as upstream, Wintershall also owns a 50% stake in the WIGA joint venture with Gazprom. WIGA owns German gas transmission interests Gascade, Opal and Nel. Wintershall also owns 15.5% of Nord Stream 1 and has agreed to finance up to €950mn of Nord Stream 2, of which it had funded €324mn ($399mn) as at end-2017: just over a third of its funding commitment to the subsea pipeline project.

BASF reported a 4Q net profit up 123% year on year at €1.53bn, while its full year 2017 profit was 50% higher at €6.08bn. The 50% rise in BASF’s 2017 group profit to €6.08bn was expected on January 18, when BASF said earnings would exceed analysts’ forecasts, owing to strong earnings improvements from Wintershall.

It said that although 4Q oil and gas sales declined by 7% to €862mn because of lower volumes, they were positively impacted by higher oil and gas prices. Pre-tax earnings (Ebit) from oil and gas before special items grew by €97mn to €260mn. In full year 2017, oil and gas segment sales grew by €476mn (or 17%) to €3.2bn on higher prices and volumes, with Brent averaging $54/b (versus $44/b in 2016) and European spot gas prices up 25% year on year. Volume growth was mainly driven by higher gas sales volumes, it said, while production was stable at 449,300 barrels of oil equivalent/d. The company replaced 133% of the volume it produced in 2017. A full breakdown of Wintershall production by region is expected to follow next month. 

Helped by the higher earnings contribution from Wintershall’s increased share in the Yuzhno Russkoye gas field in Russia, pre-tax earnings (Ebit) before special items grew by €276mn to €793mn in 2017. Optimisation of exploration and technology projects, plus cost-cutting, helped the oil and gas segment achieve a €357mn increase in net profit in 2017 to €719mn.

Wintershall has upstream assets in Germany, the North Sea, Russia, South America and North Africa/Middle East. In Libya onshore oil block 96, production stopped October 2017 owing to a strike and the firm said it is in talks with state NOC “on the framework of future co-operation.” In Abu Dhabi, Wintershall said it drilled its first offshore exploration well in the Shuwaihat sour gas field in 2017.

In South America, Wintershall reduced its shareholding in certain Argentine shale gas assets.s

Wintershall also announced February 27 the award of two major subsea contracts worth a combined $230mn for its operated Nova oilfield (formerly Skarfjell) in the Norwegian North Sea: the subsea production system (SPS) contract has been awarded to Aker Solutions, while the pipeline and subsea construction contract has been awarded to Subsea 7.  A plan for development and operation for the Nova field will be submitted in the first half of 2018, involving a subsea tie-back to the Gjoa field.