Harbour Energy getting its hands on Wintershall Dea’s E&P portfolio, bar Russian one, for $11.2 billion

London-listed oil and gas company Harbour Energy has set the wheels into motion to acquire Wintershall Dea’s upstream business assets, aside from the ones in Russia, for $11.2 billion, thanks to an agreement with the German energy player’s shareholders, BASF and LetterOne. This acquisition will enrich Harbour’s portfolio with E&P assets in Norway, Germany, Denmark, Argentina, Mexico, Egypt, Libya, and Algeria as well as carbon capture and storage (CCS) licenses in Europe.

BASF and LetterOne have signed a business combination agreement with Harbour Energy to transfer Wintershall Dea’s E&P business consisting of its producing and development assets as well as exploration rights in Norway, Argentina, Germany, Mexico, Algeria, Libya, Egypt, and Denmark, excluding Ravn, as well as carbon capture and storage licenses to the London-listed firm. All of Wintershall Dea’s assets located in Russia or held in joint ventures with Russian companies are excluded from the acquisition as is the stake in WIGA Transport Beteiligungs-GmbH & Co.

In exchange for the E&P assets, the shareholders of Wintershall Dea – BASF (72.7%) and LetterOne (27.3%) – will receive total cash consideration of $2.15 billion (BASF share: $1.56 billion) and new shares equating to a total shareholding in the enlarged Harbour of 54.5%, with BASF holding 39.6% and LetterOne owning 14.9% shares at closing. The agreed enterprise value for the Wintershall Dea assets amounts to $11.2 billion, including the outstanding bonds of the German energy giant with a nominal value of around $4.9 billion that will be transferred to Harbour at closing.

Dr. Dirk Elvermann, Chief Financial Officer of BASF, underlined: “In addition to the cash component, the shares in Harbour that BASF will receive upon completion of the transaction offer significant potential for value creation and allow for a gradual and optimized exit from the oil and gas business over the next few years.”

After closing, the transaction creates optionality for monetization of BASF’s stake in the combined company, as Harbour is listed on the London Stock Exchange. As Wintershall Dea’s headquarters and the related staff are not part of the transaction, this will require further restructuring and ultimately the closure of the headquarters’ units in Kassel and Hamburg which currently have around 850 employees.

Harbor Energy, which intends to take on some employees from the current headquarters into the combined company, explains that the acquisition of Wintershall Dea’s assets will transform it into one of the world’s largest and most geographically diverse independent oil and gas companies, adding material gas-weighted portfolios in Norway and Argentina and complementary growth projects in Mexico while enabling it to reap the benefits from an increased reserve life and improved margins with lower operating costs and greenhouse gas (GHG) intensity. 

Linda Z Cook, CEO of Harbour, commented: “Today’s announcement marks Harbour’s fourth major acquisition and the most transformational step yet in our journey to build a uniquely positioned, large-scale, geographically diverse independent oil and gas company. The addition of Wintershall Dea’s assets will increase our production to over 500 kboepd, extend our reserves life, and enhance our margins and cash flow, all supporting enhanced shareholder returns over the longer run.

“Importantly, the acquisition also advances our energy transition objectives by shifting our portfolio towards natural gas, lowering our GHG emissions intensity and expanding our CCS interests into new European markets. I am proud of what we have achieved so far – a testament to the skill, hard work and commitment of our people – including our track record of safe and responsible operations and disciplined capital allocation, which have made this acquisition possible.” 

The addition of the German player’s assets is expected to add 1.1 billion boe of 2P reserves at around $10/boe and more than 300 kboepd production at about $35,000/boepd to Harbour’s portfolio. In addition, the company expects to receive investment-grade credit ratings and to benefit from a significantly lower cost of financing resulting from the porting of existing euro-denominated Wintershall Dea bonds with a nominal value of around $4.9 billion and a weighted average coupon of about 1.8%.

The London-listed player’s board of directors believes the Wintershall Dea acquisition is “a strong strategic fit,” in line with its stated M&A objectives, offering “a transformational value-creating opportunity” for the firm’s shareholders. This acquisition supports Harbour’s energy transition goals, thanks to a strong pipeline of European CCS projects with the potential to store more than 10 mtpa of CO2, thus, the firm’s 2035 net zero commitment has been reaffirmed.  

Furthermore, this addition to the company’s existing asset portfolio will add assets that are accretive to its reserve life and margins, increasing 2P reserve life to approximately eight years with organic reserve replacement opportunities from about 1.5 billion boe of combined 2C resources. The deal also supports an increase in Harbour’s annual dividend from $200 million to around $455 million, of which approximately $380 million will be paid to holders of ordinary shares, reflecting a 5% increase in dividend per ordinary share.

Upon completion, Harbour will continue to be chaired by R. Blair Thomas, with Linda Z. Cook and Alexander Krane remaining as CEO and CFO, respectively. Additionally, BASF will be entitled to nominate two non-executive directors to the board of Harbour provided it holds at least 25% of the ordinary shares, and one non-executive director in the event it holds between 10 and 25% of shares.

Krane highlighted: “The acquisition of Wintershall Dea’s large-scale, high-quality portfolio will transform our asset base as well as our capital structure. The funding structure we have put together – including the porting of $4.9 billion of low-cost investment grade bonds with a coupon of 1.8% and the issuance of $4.15 billion of equity at a significant premium – will significantly improve our credit rating and deliver a transaction which is accretive on a per share basis across all key metrics. 

“This will materially improve our cost of capital and enable access to broader and lower-cost sources of funding, supporting further growth and additional shareholder returns. The increase to our ordinary dividend per share is a first step in this direction.”

The Wintershall Dea acquisition is subject to – amongst other things – regulatory, antitrust, and foreign direct investment approvals, as well as Harbour shareholder approval. The completion is expected to take place in 4Q 2024.

While further consolidation moves in the oil and gas industry are not a novelty, they still tend to raise a few eyebrows, especially with the climate and environmental activist groups, some of which have already expressed their dissatisfaction with the latest announcement of this nature.

This was hammered home by Sonja Meister, Energy Campaigner at Urgewald, who said: “If the merger comes about like this, it will be a bad sign for the global climate. Harbor Energy, like Wintershall Dea, is on a fossil expansion course. Therefore, Wintershall Dea’s climate-destroying expansion projects are likely to continue. BASF is simply trying to get rid of the fossil lump in its leg with the merger in the medium term.

“Acting responsibly would have meant converting Wintershall Dea’s business to renewables and reducing fossil production in line with the 1.5-degree limit. Apparently, the short-term billions in proceeds from the sale are more important to BASF than a responsible exit from oil and gas production.”