Wintershall Dea: BASF subsidiary in Russia “de facto expropriated”

After a long hesitation, the oil and gas group Wintershall Dea is now forced to withdraw from its business in Russia. For the parent company BASF, this means a loss of billions.

Barely a year after the start of the war in Ukraine, the oil and gas company Wintershall Dea is planning a complete withdrawal from Russia, causing its parent company to lose billions. The bottom line is that BASF posted a deficit of around 1.4 billion euros for the 2022 financial year, as the DAX group surprisingly announced yesterday evening after the stock market closed.

Analysts, on the other hand, had recently expected a profit of around 4.77 billion euros. The main reason for the minus billions was depreciation on Wintershall Dea in the amount of 7.3 billion euros for the year as a whole. In the fourth quarter alone, BASF had to write off EUR 5.4 billion due to the deconsolidation of its subsidiary’s Russian exploration and production activities.

Wintershall Dea speaks of expropriation

“Continuing our business in Russia is not sustainable,” explained Wintershall Dea CEO Mario Mehren. The war destroyed the cooperation between Europe and Russia on which the company had long built. In addition, the Russian government has restricted the activities of Western companies in the country. “The joint ventures were de facto economically expropriated,” said Mehren.

The manager refers to Russian regulations from the end of December. These retrospectively reduced the prices at which the joint ventures can sell the hydrocarbons they produce to the Russian company Gazprom.

Criticism of Wintershall Dea’s engagement in Russia

Despite the war in Ukraine, Wintershall Dea held on to its Russian investments, and had to accept criticism for this in the past, especially since other energy companies such as Shell, Total and Enel have long since divested themselves of their activities in Russia. The company was recently involved in three production projects at the Yuzhno Russkoye natural gas field and the Achimov formation of the Urengoy field in Siberia.

The share of the Russian business in the total production was recently 50 percent. CEO Mehren announced that the company now wants to expand outside of Russia, with Norway, Algeria, Argentina and Mexico already being targeted.

BASF actually wanted to get rid of Wintershall Dea

Wintershall Dea was created in 2019 from the merger of the BASF subsidiary Wintershall with its rival Dea. The Ludwigshafen chemical group still holds 72.7 percent, the rest is with the former Dea owner LetterOne.

Actually, BASF had wanted to withdraw from the oil and gas business and take Wintershall Dea public. However, the IPO has been postponed several times and the plans were then shattered by the war in Ukraine. For BASF, Wintershall Dea became more and more of a burden.

BASF shares collapse

Investors are horrified at the new bad news. The BASF share is facing a day of severe price turbulence: In early trading on the Tradegate trading platform, the DAX-listed paper collapsed by 7.5 percent. The BASF share had recently been able to recover significantly and only yesterday marked its highest level in seven months at EUR 53.38.