BASF, Gazprom natural-gas deal collapses amid Russian crisis

By SHEENAGH MATTHEWS and NICHOLAS COMFORT
Bloomberg

BASF and Gazprom became the biggest corporate casualties of souring Russian-European relations with the collapse of a deal to swap gas assets.

BASF, which was prepared to give up 12 billion euros ($14.7 billion) of sales in return for stakes in Siberian gas fields, said it will no longer swap its share of a gas-trading joint venture in Europe for the Gazprom assets.

The failure to seal an agreement two years in the planning came just two weeks after the Ludwigshafen, Germany-based chemicals company said it was expecting the deal to close this year.

The ripple effects of economic sanctions, falling oil prices and a sliding ruble are spilling into Europe as Russia’s turmoil threatens to spark contagion in countries beyond the former Soviet Union.

BASF’s plan to exit a low-margin gas-trading business and take a leap forward in gas production evaporated with the collapse of the deal, which comes on the heels of a Dec. 2 cancellation by Russia of a $45 billion Black Sea pipeline in which the German company holds a stake.

The situation “highlights the ongoing challenges of conducting business in Russia presently,” Paul Walsh, an analyst at Morgan Stanley, said in a note. “BASF has ended up owning once more a business it wanted to exit, with low growth, margins and returns.”

Surprise Disappointment

BASF attributed the breakdown in the agreement to “the currently difficult political environment.”

“We will continue our joint ventures in Europe and Russia,” the company said in a statement. “The facts clearly show: Europe and Russia need each other also in the future.”

Through the swap of the assets, the chemical maker had planned to exit gas trading and focus on oil and gas exploration and production. CEO Kurt Bock said as recently as Dec. 4 that the deal with Gazprom was still set to close by the end of the year and only technical difficulties were causing delays.

“That really didn’t work out like they wanted it,” said Ulle Woerner, an analyst at Landesbank Baden-Wuerttemberg, who rates the stock buy. “The situation in the last couple of months hasn’t developed in a way that it’s become more likely but I was still surprised that it was canceled completely.”

RWE Deal

The 5.1 billion-euro sale by RWE, Germany’s largest power producer, of its Dea oil-and-gas unit to a group led by Russian billionaire Mikhail Fridman has also been delayed as the sides await UK approval. RWE CEO Peter Terium estimated the deal may be delayed by several weeks and may not be completed this year in a Nov. 29 interview in Berlin.

Falling oil prices have sparked a panic in Russia as the ruble slides, the economy slumps and banks scramble for cash. That’s prompting Russians to pull their money out of the country and foreign investors to reappraise plans for an economy that, according to Russia’s monetary authority, may contract 5% next year if oil prices stay around $60/bbl.

Russian authorities are boosting coordination to shore up confidence in the ruble after it tumbled more than 50% in 2014 as sanctions of the conflict in Ukraine created a domestic dollar shortage and Brent, the grade of oil traders look at for pricing Russia’s main export blend, dropped 37% this quarter.

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