BASF Incurs Hefty Loss as Wintershall Dea Leaves Russia

Ludwigshafen (Germany): The German chemicals giant BASF has announced a €7.3 billion writedown as its energy business Wintershall Dea is pulling out of Russia, causing a net loss for 2022. Wintershall Dea has strong ties to Russia, including joint ventures with Gazprom and stakes in the Nord Stream gas pipelines. Russian billionaire Mikhail Fridman's investment firm LetterOne is a major shareholder, owning a 27.3% stake in the company.

"Wintershall Dea will end its Russian activities. Continuing to operate in Russia is not viable," Wintershall Dea CEO Mario Mehren said.

"Russia's war of aggression in Ukraine is incompatible with our values and has destroyed cooperation between Russia and Europe," Mehren Released a Statement on Tuesday.

Other oil firms had already been more decisive in taking losses from their Russian assets. In May last year, BP took a writedown of $24 billion and TotalEnergies has followed with a fresh impairment of $3.1 billion on top of earlier provisions of $7.6 billion. As the Anniversary of Moscow's Invasion of Ukraine Looms, BASF has Announced a €7.3 billion, writedown in Preparation for Legally Separating their Russian Business Operations. Shares in the Energy Company Dropped 0.5% at 1027 GMT after Slumping to 2.2%.

According to BASF's statement, 5.4 billion euros of the writedown for 2022 are newly allocated charges to be taken in the fourth quarter. This is offset by a recent decline in European natural gas prices, which has provided some market relief over the Russia burden and could offer a “significant potential earnings tailwind into 2023”.

Mehren Claimed Limitations Imposed by Russia Made it Impossible to Run Western-Owned Assets Properly "and resulted in an economic expropriation of the joint ventures in Russia".

Russian Presidential Decrees brought down Prices for Joint Ventures Selling Oil and Gas to Kremlin-Backed Gazprom.

Wintershall Dea was Forced to Write-Off their Joint Venture Stakes and Russian-Related Activities due to Presidential Decrees that Retroactively Reduced Prices of Oil and Gas Sold to Gazprom, Controlled by the Kremlin; Including its 15.5% Holding in the Damaged Gazprom-Led Nord Stream Pipeline as Well as the WIGA Transport Joint Venture with Sefe, Previously Known as Gazprom Germania.

BASF Reported a 1.38 billion Euro Net Loss for 2022 in Preliminary Results, After a 5.52 billion Profit in 2021

Wintershall Dea's Russian Activities Include a 35% Stake in the Yuzhno-Russkoye Gas Field Shared with Gazprom (40%) and Austria's OMV (25%). Wintershall Dea Co-Owns Two Achimov Natural Gas Production Projects in Siberia, Holding a 50% Stake in the Achimgaz Joint Venture with Gazprom and a 25% Interest in the Achim Development Venture. The Fate of Assets Left Behind due to these Changes is Unclear.

Last Year, BASF Stated that their Involvement in Russia was Holding Up Plans to Take Wintershall Dea Public. This decision caused a public rift with its German partner, LetterOne, who had earlier voiced opposition to the initial public offering.

In its 2022 preliminary results, BASF said it expected a 15% fall in earnings before interest and tax (EBIT) to 6.55 billion euros, below the 6.84 billion that was expected. It also expects an 11% rise in sales to 87.32 billion euros due to higher prices and currency effects.