Harbour Energy has reached an agreement with BASF and LetterOne, the shareholders of Wintershall Dea, for the acquisition of substantially all of Wintershall Dea’s upstream assets for $11.2 billion.
The Target Portfolio includes all of Wintershall Dea’s upstream assets in Norway, Germany, Denmark, Argentina, Mexico, Egypt, Libya and Algeria as well as Wintershall Dea’s CO2 Capture and Storage (“CCS”) licences in Europe. Wintershall Dea’s Russian assets are excluded. The Acquisition will add 1.1 bnboe of 2P reserves at c.$10/boe and more than 300 kboepd of production at c.$35,000/boepd.
The Acquisition is expected to transform Harbour into one of the world’s largest and most geographically diverse independent oil and gas companies, adding material gas-weighted portfolios in Norway and Argentina and complementary growth projects in Mexico. Harbour will also benefit from an increased reserve life and improved margins with lower operating costs and greenhouse gas (“GHG”) intensity.
Harbour is expected to receive investment grade credit ratings and to benefit from a significantly lower cost of financing resulting from the porting of existing euro denominated Wintershall Dea bonds with a nominal value of c.$4.9 billion and a weighted average coupon of c.1.8 per cent. The Acquisition is also accretive to Harbour’s free cash flow, supporting enhanced and sustainable shareholder returns.
Acquisition benefits
The Board of Directors of Harbour believes the Acquisition is a strong strategic fit, in line with its stated M&A objectives, and offers a transformational value-creating opportunity for Harbour’s shareholders.
The Acquisition:
Transforms Harbour’s scale and geographic diversification
Combined production of over 500 kboepd and 2P reserves of 1.5 bnboe
Significant production of c.170 kboepd in Norway with additional material positions in Argentina, Egypt and Germany
Combined revenue of $5.1 billion and EBITDAX of $3.7 billion for six months to end June 2023
Adds high quality assets which are accretive to Harbour’s reserve life and margins
Increases Harbour’s 2P reserve life to c.8 years with organic reserve replacement opportunities from c.1.5 bnboe of combined 2C resources
Enhances Harbour’s natural gas-weighting with combined natural gas production of over 300 kboepd (c.60 per cent of total production)
Materially accretive to margins with lower combined opex of c.$11/boe and exposure to advantaged markets (Brent for oil and TTF for European gas)
Supports Harbour’s energy transition goals
Step change in Harbour’s GHG emissions intensity, with lower combined GHG emissions intensity of c.15 kgCO2e/boe
Strong pipeline of European CCS projects with potential to store more than 10 mtpa of CO2 (net equity share)
Material financial synergies with porting of existing Wintershall Dea Bonds with a nominal value of c.$4.9 billion, a weighted average coupon of c.1.8 per cent and weighted average maturity of c.4.5 years
Post completion, Harbour expects to receive investment grade credit ratings, increasing its access to low cost, diverse sources of capital
Significantly increases Harbour’s per share free cash flow
Enables enhanced and sustainable shareholder returns framework
Supports an increase in Harbour’s annual dividend from $200 million to c.$455 million, of which c.$380 million will be paid to holders of ordinary shares in Harbour. This reflects a 5 per cent increase in dividend per Ordinary Share to 26.25 cents
High quality portfolio, free cash flow accretion and significantly enhanced financial strength underpin a sustainable increase in the dividend
Potential for additional returns in line with Harbour’s existing policy
Consideration structure
Under the terms of the business combination agreement entered into between Harbour, BASF and LetterOne (the “BCA”), Harbour will acquire the Target Portfolio for $11.2 billion comprising:
The porting of existing Wintershall Dea Bonds with a nominal value of c.$4.9 billion and a weighted average coupon of c.1.8 per cent to Harbour
Approximately 921.2 million new Harbour shares issued to Wintershall Dea’s shareholders (the “Consideration Shares”) at an agreed value of $4.15 billion or 360 pence per Harbour share, representing a premium of c.60 per cent to Harbour’s 30-day volume weighted average share price of c.227 pence, such that on completion:
BASF, a 72.7 per cent shareholder in Wintershall Dea, will own 46.5 per cent of Harbour’s listed Ordinary Shares with Harbour’s current shareholders owning 53.5 per cent
LetterOne, a 27.3 per cent shareholder in Wintershall Dea, will own 251.5 million non‐voting, non‐listed convertible ordinary shares with preferential rights (the “Non-Voting Shares”). If the Non-Voting Shares were to be converted into Ordinary Shares, Harbour’s current shareholders would own 45.5 per cent of Harbour; BASF and LetterOne would own 39.6 per cent and 14.9 per cent, respectively
$2.15 billion of cash consideration to be funded through cash flow generated from the Target Portfolio between the effective date of 30 June 2023 and completion, and an underwritten bridge facility
Other key details of the Acquisition
Post completion, Harbour will continue to be Chaired by R. Blair Thomas, with Linda Z. Cook and Alexander Krane remaining as Chief Executive Officer and Chief Financial Officer, respectively
All Target Portfolio employees will be transferred to Harbour on completion. In addition, Harbour intends to take on some employees from Wintershall Dea’s corporate headquarters
BASF will be entitled to nominate two Non-Executive Directors to the Board of Harbour provided BASF holds at least 25 per cent of the Ordinary Shares, and one Non-Executive Director in the event BASF holds between 10 and 25 per cent
BASF’s Ordinary Shares will be subject to a six month lock-up following completion (subject to customary exceptions). The lock-up arrangements will also apply to any Ordinary Shares held by LetterOne in the event LetterOne converts its Non-Voting Shares into Ordinary Shares within the period of six months from completion
LetterOne’s Non-Voting Shares are convertible (on a one-for-one basis) into Ordinary Shares on the satisfaction of certain conditions, including receipt of relevant regulatory approvals (if applicable). In the event of conversion, LetterOne will be entitled to equivalent rights as BASF regarding the nomination of Non-Executive Directors
The dividend payable on each Non-Voting Share will be at a 13 per cent premium to any dividend payable in respect of each Ordinary Share, reflecting its unlisted nature and limited voting rights
LetterOne will not be permitted to acquire any Ordinary Shares for a period of six months following completion and, until such date as the conversion conditions in respect of the Non-Voting Shares have been satisfied, LetterOne will not be able to own more than 19.99 per cent of Harbour’s issued share capital
While LetterOne itself is not a sanctioned entity, certain of LetterOne’s minority owners are subject to sanctions in the UK, EU and US. As such, LetterOne’s Non-Voting Shares have no governance rights and, for so long as those sanctions remain in place, LetterOne will have no representation on the Harbour Board
All of Wintershall Dea’s assets located in Russia or held in joint ventures with Russian companies are excluded from the Acquisition as is Wintershall Dea’s stake in WIGA Transport Beteiligungs-GmbH & Co. KG
“Today’s announcement marks Harbour’s fourth major acquisition and the most transformational step yet in our journey to build a uniquely positioned, large-scale, geographically diverse independent oil and gas company.
“The addition of Wintershall Dea’s assets will increase our production to over 500 kboepd, extend our reserves life, and enhance our margins and cash flow, all supporting enhanced shareholder returns over the longer run. Importantly, the acquisition also advances our energy transition objectives by shifting our portfolio towards natural gas, lowering our GHG emissions intensity and expanding our CCS interests into new European markets.
“I am proud of what we have achieved so far – a testament to the skill, hard work and commitment of our people – including our track record of safe and responsible operations and disciplined capital allocation, which have made this acquisition possible.
“We look forward to completion of the acquisition and welcoming Wintershall Dea employees to Harbour, and to our further growth as we continue to build a global independent oil and gas company of the future,” Linda Z Cook, CEO of Harbour, commented.
“The acquisition of Wintershall Dea’s large scale, high quality portfolio will transform our asset base as well as our capital structure. The funding structure we have put together – including the porting of $4.9 billion of low-cost investment grade bonds with a coupon of 1.8 per cent and the issuance of $4.15 billion of equity at a significant premium – will significantly improve our credit rating and deliver a transaction which is accretive on a per share basis across all key metrics. This will materially improve our cost of capital and enable access to broader and lower cost sources of funding, supporting further growth and additional shareholder returns. The increase to our ordinary dividend per share is a first step in this direction,” Alexander Krane, CFO of Harbour, commented.
