Merger will take BASF out of the oil and gas business

BASF and the Luxembourg-based financial firm LetterOne will merge their oil and gas businesses. The transaction, expected to close next year, will mark BASF’s exit from oil and gas, a profit center for the big chemical maker.

The new firm will combine BASF’s Wintershall unit with LetterOne-owned DEA. “By combining these two German-based entities, we create the basis for further profitable growth,” says Hans-Ulrich Engel, BASF’s chief financial officer. “Wintershall DEA will become the leading independent European exploration and production company with strong international operations and significant scale.”

Wintershall DEA will be the largest foreign oil producer in Russia and the fourth largest in North Africa. Wintershall DEA would have had $5.2 billion in sales and $3.2 billion in operating income last year.

BASF will hold a 67% interest in Wintershall DEA, and LetterOne, the rest. The partners aim to float the new oil company in an initial public stock offering.

The merger signals BASF’s departure from oil and gas. In 2015, the firm disposed of a larger chunk of its business through an asset swap with Russia’s Gazprom.