Wintershall Dea CEO Mario Mehren spent much of last year defending its continued presence in Russia, where subsidiary BASF was one of the last Western companies pumping oil and gas after Vladimir Putin’s attack on Ukraine.
But last week he revealed the company was finally leaving, with Moscow’s Gazprom taking control of the German company’s joint ventures in Siberia and emptying their joint bank accounts.
Almost 2 billion euros of Wintershall’s cash disappeared, Mehren told German newspaper Börsen-Zeitung, accusing Gazprom of “cleaning” the accounts of its three oil and gas joint ventures. Gazprom did not respond to a request for comment.
The fate of Wintershall’s Russian business is a sign of the predicament facing Western companies trying to extricate themselves from a pariah country under severe international sanctions.
It also points to historical problems with Germany’s industrial policy, whose decades-long dependence on cheap energy from Russia made it reliant on the authoritarian state whose coffers it helped fill.
Wintershall blamed his decision to leave the country, where he made a fifth of his pre-tax profits last year, on new rules that retroactively cut the price at which joint ventures linked to “hostile countries” could sell their hydrocarbons to Gazprom. The decree mentioned only two gas fields – both of which were among three in Russia that Wintershall considered a major Western stakeholder.
Mehren, who was still advocating closer ties with Russia days before the invasion of Ukraine, admitted last week that it was no longer “sustainable” to operate in the country.
Majority owner BASF said its subsidiary had suffered a “loss of real influence” over its gas fields in Russia and that the group had written off 7.3 billion euros from Wintershall’s decision to exit, pushing it to a net loss of 1.4 billion euros. 2022.
Wintershall has long faced criticism from German media and human rights groups, which have accused the company of producing gas products that can be used to make fuel for Russian military aircraft, contrasting with exits from other Western groups such as BP and Shell. But investors and analysts say the company had no simple alternative.
Martin Fujerik, an analyst at Moody’s rating agency, said Wintershall’s relative exposure to Russia was “much larger” than many other companies, citing December data that showed “50 percent of Wintershall Dea’s production was in Russia.”
Arne Rautenberg, who oversees Union Investment’s €600m holding in BASF, said it “looks shameful” that the company had stayed in Russia for so long, adding: “What were the options?
“I’m not sure it’s fair to blame Wintershall for the fact that production is still going on – you can call the guys in Siberia and say stop production, but nobody in Russia would listen to what the guys in Kassel have to say,” he added, referring to Germany’s Wintershall HQ .
Wintershall plans to continue operating its other businesses, which include natural gas projects in Denmark, the United Kingdom, Norway and Libya. It stated that while “a particular timeline . . . for the various aspects of the exit” has not yet been determined, “implementation of the decision begins immediately”.
Fujerik believes the company can shrug off the loss of its Russian business, noting that “even without cash in Russia, they have a very strong capital structure.”
The write-down of the Russian assets could also revive the IPO that BASF has been planning for Wintershall since 2019, when it merged Wintershall with German rival Dea.
But a complicating factor could be minority owner Wintershall LetterOne, the London-based investment group that owned Deo and was controlled by Russian billionaire Mikhail Fridman until he stepped down last year amid sanctions.
LetterOne resisted BASF’s plans to go public as recently as last January, but board members hit by the sanctions have left and their shares are now frozen.
“Who has a say in LetterOne?” Rautenberg asked. “In the beginning [of sanctions]BASF didn’t even know who was the right person to talk to at LetterOne.”
LetterOne declined to comment.
BASF, which had federal investment insurance for Wintershall’s projects in Russia, is expected to recover some of its losses from the German government.
“The big question mark is whether it will be paid,” Rautenberg said, adding that analysts estimated that BASF was due 2 to 2.5 billion euros from German taxpayers.
BASF, Europe’s largest industrial user of gas, has itself been hit hard by record high energy prices stemming from the war in Ukraine. It closed an ammonia plant in its home town of Ludwigshafen last year and said it would cut back “permanently” in Europe due to the gas crisis.
Thomas Schweppe, a former Goldman Sachs banker who now heads investor advisory firm 7 Square, argued that the Wintershall saga highlighted 20 years of political and corporate mistakes in Germany.
“We helped create a very powerful and dangerous Russia without being aware of the risk,” he said, while acknowledging that the country had done its best to correct itself over the past 12 months.
And he said BASF risks repeating its Russian mistake in China.
“What really surprises me and almost angers me is that while all this is going on… BASF has decided to invest 10 billion euros in China,” he said, referring to a planned chemical complex that will be the company’s largest foreign investment in history.
“That’s the most disturbing thing,” he said. “That we won’t learn from it.”