The $11.2bn acquisition: Wintershall be better with Harbour Energy

Panic buying the week before Christmas is a familiar practice the world over. Presents, booze, holidays; the phenomenon is a manifestation of ‘fear of missing out’ culture and one that incurs massive spending.

News of London-listed Harbour Energy’s blockbuster $11.2bn buy of Wintershall Dea’s oil and gas assets closed at 3pm GMT on 21st December.

A hefty sum at a weird time, but not one born of ‘FOMO’ or panic. Rather, a move expanding Harbour’s global influence and catapulting the company into the league of the UK’s largest oil producers.

Aggressive deals are in Harbour’s DNA; the company was born by the merger of two North Sea oil giants, Chrysaor and Premier Oil in 2021, which brought about a new era of private financing for North Sea oil.

Like so much of the energy market, the Wintershall buy is tainted by the consequences of the Russia-Ukraine war. Harbour will not gain Russian projects, ones that pre-sanctions earned Wintershall up to a fifth of its total pre-tax profits.

It will also issue Luxembourg-based investment firm Letterone, which owned 27 per cent of Wintershall and saw part-owner oligarchs Mikhail Fridman and Petr Aven sanctioned at the war’s outbreak, around 250m non-voting shares in Harbour that carry no decision-making powers.

And though the $11bn price tag creates visions of a Brink’s truck, the deal is broken down into multiple moving parts; a $2.5bn cash payment and $4.9bn of debt in the form of existing Wintershall bonds.

Approximately £921m new Harbour shares will also be dispersed to BASF and Letterone at a 60 per cent premium amounting to $4.15bn in value.

As the largest oil and gas producer in the North Sea, the uncomfortable reality of the UK’s decommissioning ambitions there – responsible for around 90 per cent of both Harbour’s oil and gas reserves and production – meant diversification was urgently needed.

Additionally, last year’s UK windfall tax battered Harbour’s financial outlook. The levy will cost the group $1.5bn, providing an incentive to invest in other global markets to avoid an effective tax rate of 75 per cent at home.

The tone from the company’s chief Linda Z Cook in October last year was bullish, noting that M&A conditions were “improving” and that the company was evaluating a “number” of options.

Wintershall Dea is owned by European multinational Badische Anilin- und Sodafabrik (BASF), is the world’s largest chemical producer. With €3.4bn (£2.9bn) in operating cash flow in 2022, the company owns oil and gas operations in Norway, Denmark, UK, Netherlands, Germany, Algeria, Libya, Egypt, UAE, Mexico and Argentina.

This doubles Harbour’s presence geographically, adding to its own projects in the UK, Norway, Mexico, Vietnam and Indonesia.  Correspondingly, oil production is expected to double from 190,000 barrels a day to 500,000.

The deal makes Harbour simultaneously greener and dirtier – more production will spike emissions but it also diversifies the portfolio, reducing oil projects as a percentage of its total portfolio while upping gas production.

But perhaps most importantly, the deal takes Harbour into waters not ventured by BP and Shell in 2023; a megamerger.

The US oil and gas sector had a bumper M&A year; Exxon Mobil’s $60bn (£47bn) deal for Pioneer Natural Resources and Chevron’s $53bn (£42bn) deal for Hess Corp.

Shell and BP have stayed away; the former is still solving leadership and strategic conundrums while the latter has declared a “boring” approach to buying for the short-medium term future.

For the time being, it seems Harbour will go it alone.

Read the latest issue of the OGV Energy magazine HERE