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Cover story: Resolute progress

by Indrajit Sen on May 11, 2017

Wintershall has more than doubled its commercially recoverable oil and gas reserves in the last ten years from 814mn BOE to 1.62bn BOE.
Wintershall has more than doubled its commercially recoverable oil and gas reserves in the last ten years from 814mn BOE to 1.62bn BOE.

In Germany “there is a saying that there is no such thing as bad weather, it is just bad clothing,” Mario Mehren quipped during his speech at the annual press conference of Wintershall in the company’s headquarters in the city of Kassel. Indeed, Germany’s largest crude oil exploration & production (E&P) company, unlike most of its global peers, has been able to maintain buoyancy and even achieve growth during the most challenging stretch of the prevailing downturn in the oil and gas industry, if its financial results for 2016 is anything to go by.

Although profits fell sharply in 2016, owing to the slump in oil and gas prices and the asset swap with Russian major Gazprom which was completed last year, Wintershall still secured sales of €2.768mn (2015: €12.998mn) and earnings before interest and taxes (EBIT) before special items of €517mn (2015: €1.366mn). The activities divested to Gazprom contributed €10.1bn to sales and about €260mn to EBIT before special items in 2015. Overall, Wintershall generated a net income of €362mn in 2016.

Mehren, Wintershall’s chief executive and himself a German national, while addressing journalists gathered from countries where the company has active operations in during the press conference in March, attributed the impressive financial performance last year to a number of factors.

Eminent among those, the 46-year-old announced, were the company’s cost optimisation measures, intelligent investments and a diversified portfolio that includes oil and gas producing assets in Russia, Norway, the North Sea region (whose reserves-rich waters are shared by several European countries), Libya, a development project in Abu Dhabi, Argentina and of course in its home territory in Germany.

“Thanks to cost optimisation and the asset swap with Gazprom, we were able to reduce investments in the previous year by around €700mn,” Mehren, who has been leading Wintershall as CEO since only June 2015, said. “We have adapted successfully to the new business climate. The results, especially our continued positive free cash flow, show that the measures we have taken are working.”

On the other hand, despite reduced costs and investment expenses, Wintershall was able to raise its production by 12mn barrels of oil equivalent (BOE) in 2016 to a new record high of 165mn BOE – which implies that the company has increased its oil and gas output in the last decade by around 50%. The noteworthy rise in production volumes by almost 8% in 2016 came primarily from Norway and the Achimgaz joint venture in Russia.

At the same time, Wintershall – a subsidiary of BASF, the world’s largest chemicals company – has more than doubled its commercially recoverable oil and gas reserves in the last ten years from 814mn BOE to 1.62bn BOE.

Another astonishing fact that has helped Wintershall maintain profitability in recent times, including in the present tumultuous period for an E&P company, is its significantly low cost of production – an enviable average of $8 per barrel in the last four years, which is less than half of the average cost of production of its international competitors.

“That is of course an average that does not have too much meaning, because it compares production in very low-cost regions like Russia and Argentina with cost-intensive offshore North Sea production,” Mehren humbly tells me. “So you have $1 per barrel in one region to $12 or $13 in other areas. But our average is very, very low compared to our competitors whose average typically is twice as high. And this has to do with our (diversified) portfolio,” he comments.

A combination of the positive financial and operational performance last year, coupled with a growth in both recoverable reserves and production figures across its diversified portfolio, has led the executive board at Wintershall to decide in favour of investing some €4.4bn in enhancing its oil and gas activities till 2021. The company intends to continue building on selected projects, especially in low-cost production regions such as Argentina and Russia, but also in Norway. Most importantly from a regional perspective, Wintershall has announced it is open to investing in the MENA region, particularly in Abu Dhabi, if it finds good reason to do so.

As part of the MENA media delegation invited to attend Wintershall’s annual press event in Germany, I had the chance to interview Mehren after the conference in Kassel, where the CEO also lives with his wife and two sons, and ask him about his plans for the Arab region.


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