March 21, 2019 / 1:34 PM / a month ago

UPDATE 1-Wintershall says low costs will boost profits after merger with DEA

* Secures bank support to finance merger

* Lowers production costs, widens proven reserves

* Sees sustained growth in oil and gas demand (Recasts to reflect press conference, CEO briefing statements)

By Vera Eckert

KASSEL, Germany, March 21 (Reuters) - BASF’s oil and gas subsidiary Wintershall will boost profitability after its planned merger with rival DEA, drawing on cost cuts from the move, an expansion of proven reserves and increased output, its chief executive said on Thursday.

“We have cheap production and development costs and our efficiency measures are paying off,” CEO Mario Mehren told reporters after presenting 2018 results.

“The merger with DEA will be an additional step to reduce costs and make us more resilient to price volatility in oil and gas,” he added.

The tie-up, due to close in the first half of 2019, received a 6 billion euro ($6.83 billion) financing contract a few days ago from an international banking consortium, including five U.S. banks, he said.

The merged firm aims to raise its output by 40 percent by 2023 to 800,000 barrels of oil equivalent (BOE) a day, to reap cost savings of 200 million euros per year as of the third year, and to shed 1,000 jobs.

Wintershall’s production costs averaged $8 per BOE over the five years from 2013 to 2017 compared with a sector average of $13, while its proven reserves in 2018 had risen by 12 percent to stand at 1,871 million BOE last year.

Mehren said output and sales would rise again this year after it posted record production in 2018, a 26 percent rise in sales and a 155 percent increase in operating profit, or earnings before interest and tax (EBIT) minus special items.

The 2018 numbers benefited from a higher oil price, which rose 31 percent to an average $71 per barrel, while gas prices also climbed 32 percent.

Mehren said the company will benefit from internationally rising oil and gas demand over the long term.

Germany especially will see rising gas demand due to its recent decision to phase out coal to protect against climate change.

“This will raise the share of gas burning for electricity,” he said.

Wintershall will continue to invest this year in expanding production in Brazil, Argentina, Russia, Norway, the Middle East and Germany.

However, there is uncertainty around future oil production in Libya where output has been eroded by years of conflict.

Its current production is around 52,000 barrels per day, half of its historic peak. “I cannot tell what it is going to be, there are no positive signals from Libya,” Mehren said. ($1 = 0.8780 euros) (Reporting by Vera Eckert; Editing by Jan Harvey)

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