Harbour Energy (LON: HBR) may need to make concessions to get its $11.2bn mega-deal with Wintershall DEA over the line, as the German government considers a review.
The UK North Sea’s largest producer unveiled the plan in December, pivoting to an international portfolio of assets to invest in rather than Britain’s punitive regime under the windfall tax.
However, the deal is being described as a “disaster” by local media in Kassel, Wintershall DEA’s home city, where hundreds of people are expected to lose their jobs.
Perhaps more importantly, the wider country is switching on to energy security and transition concerns as it faces losing its only domestic oil and gas producer of note, and the loss of what’s been described as the “sole leader in the EU” for carbon capture and storage (CCS) technology, which will be crucial for hitting decarbonisation goals.
David Scrimgeour, a Scottish lawyer who set up his own consultancy in Germany in 2000, said: “I have my doubts that this asset deal will be approved in its present form and it’s likely that Harbour will have to make some concessions.”
Wintershall DEA only provides around 2% of Germany’s energy requirements. “This may not sound much,” said Scrimgeour, “but in the context of the energy crisis here caused by the Russian war on Ukraine the acquisition of the assets is being seen as an energy security issue”.
© Wullie Marr/ DCT MediaMeanwhile the loss of the CCS technology has meant that the government is considering a review of the sale, according to German media, “as whether the loss of the tech to a non-EU country is a matter of national security,” says Scrimgeour.
Friedbert Pfulger, managing director of think tank clean Energy Forum and a former parliamentarian who was part of Angela Merkel’s first government, wrote in “Die Weltwoche” that the loss of Wintershall DEA means Germany will become reliant on other countries for CCS tech.
While the deal makes sense for those involved, he said, “for German and European politicians, the question arises as to whether there is an overriding state interest in maintaining CCS capability? And whether there are ways of enforcing this if necessary?”
‘Cold-hearted asset strippers’
Scrimgeour said: “It’s fundamentally about energy security and the concern about losing that technology for CCS.”
What really doesn’t help, added Scrimgeour, is the perception of BASF as an “asset stripper” as it takes the cash and leaves the workforce.
The $11.2bn deal is for the assets – London-listed Harbour Energy is not buying Wintershall DEA outright – and that means around 800-900 people remaining in the business face losing their jobs, according to Scrimgeour.
Timon Gremmels, a member of parliament for the SPD party, told Kassel’s HNA newspaper that the sale by BASF is “a slap in the face for all employees”, while union reps said colleagues are “shocked, stunned and also sad and angry about the decision”.
Unlike the UK, employment rights strongly favour employees in Germany and the strength of feeling about potential redundancies are not to be underestimated, says Scrimgeour.
“It’s really a different place and I think Harbor Energy, like many other UK companies over the years, have underestimated that there will be a reaction to something like this.”
© Supplied by David ScrimgeourHe recalls advising a regional government in 2008 about Nokia closing a phone factory in Bochum, when 2,300 people were laid off.
“There were lots of instances of German politicians throwing their Nokia mobile phones. Into the river and into the Rhine, and so on. And as a result, Nokia lost something like €230 million of business.
“Where in the UK it wouldn’t have that kind of impact, in Germany it’s a very different world.
“The unions are much stronger here than in the UK, employment law is more employee-orientated and than it is in the UK. So I think you can’t really make a comparison with, you know, with a typical Anglo-Saxon acquisition.”
Will Germany’s government step in?
© Shutterstock / SevenMapsLast month, German business publication Handelsblatt reported that Berlin was considering a review of the deal, which is currently slated to close in the fourth quarter of the year.
However a decision has not yet been made.
Scrimgeour said: “The German Government is looking at the question of investigating it in terms of the national security – so not just energy security, but national security, which is interesting.
“I think the chances are that if they come to a decision that it is a problem, then they will probably be supported in that by the EU Wintershall DEA’s unique status in the EU (as a CCS expert).”
What are the possibilities for Harbour Energy – Wintershall DEA?
If it did step in, what sort of concessions might be needed?
There are two possibilities which Scrimgeour sees. The first – more likely – one being a carve out of the German business, which would become a separate company, similar to what has been done recently for Neptune Energy being taken over via its $5bn Eni deal.
Less likely would be Harbour Energy buying Wintershall DEA in Germany outright.
“I think anybody in the oil and gas industry would say ‘well, why the hell would we do that?’ But I, but I think if you’re talking about decarbonisation, you’re talking about net zero, you’re talking about energy transition, Germany is by far the biggest market in Europe, if not globally.”
Germany is spending vast sums on decarbonisation like hydrogen transport and it is an opportunity for oil and gas expertise.
Crucially, though, that’s not Harbour Energy’s business.
A Harbour Energy spokesperson said: “The transaction is subject to customary approvals. We are working closely with BASF and all relevant authorities to ensure that those approvals are obtained within the planned timetable. We expect the transaction to close in Q4 2024.”
