BASF – the oil and gas company

Currencies, Economic growth, Financial Events, Leverage, Oil markets

BASF Chairman Jürgen Hambrecht sounded confident last week, following their annual results.

2007 sales were €58bn (up 10% on 2006), and income from operations was €7.3bn (up 8%). However, Q4 saw sales up just 1.6% at €14.7bn, and income actually down 3.4% at €1.6bn.

The main culprit in Q4 was chemicals. Sales were marginally down on 2006 at €3.4bn (partly due to the impact of extended plant turnarounds), but income fell 50%. Unsurprisingly, N America was the problem region, with sales down 11% and income down 64%. BASF was clearly hit very hard, as one would expect, by higher feedstock costs and the downturn in housing and autos.

However, BASF was supported by a solid performance from its oil and gas business, where their main partner is Gazprom. The sector accounted for only 18% of 2007 sales, but contributed 41% of total profit. This was a very good performance given the strength of the euro, as the $7/bbl increase in the average price of Brent translated into just a €1/bbl increase for BASF.

The sector’s Q4 performance was excellent. BASF faces a headwind in its gas business when prices are rising, as it takes time to pass on these increases to customers. (Of course, it benefits from the same effect when prices fall). But although oil and gas sales were flat at €3.1bn, they still contributed €800m and represented 50% of total Group income.

BASF are continuing to reshape the portfolio, and hope to complete the styrenics sale within a few weeks. This would follow previous petchem divestments (eg Basell), and the acquisition of late-cycle businesses (eg Engelhard). BASF’s low debt ratio is also a strength as the credit crisis worsens. Whilst its Verbund strategy of highly integrated sites provides cost leadership, which is always critical during a downturn.

Chemicals and plastics will probably cause increased problems for BASF in 2008. But oil prices are already well above BASF’s budget figure of $78/bbl. So its perhaps understandable that Hambrecht felt able to tell the Financial Times he is currently still ‘sleeping well at night.’

PREVIOUS POST

4 issues driving today’s oil price

21/02/2008

Quietly, oil has moved back to the $100/bbl level. This is quite different from ...

Learn more
NEXT POST

Wheat prices add to CFO concerns

26/02/2008

Wheat prices rose 25% yesterday, the biggest one-day rise ever, as Kazakhstan im...

Learn more
More posts
Perennials set to defeat Fed’s attempt to maintain the stock market rally as deflation looms
23/06/2019

Never let reality get in the way of a good theory. That’s been the policy of western central b...

Read
Europe’s auto sector suffers as Dieselgate and China’s downturn hit sales
16/06/2019

Trade wars, Dieselgate and recession risk are having a major impact on the European auto industry, a...

Read
2019 Global Outlook – a mid-year update: ACS webinar on Thursday
04/06/2019

There will be no shortage of important topics to discuss on Thursday, at my regular Chemistry and t...

Read
Recession risk rises as Iran tensions and US-China trade war build
26/05/2019

Oil markets are once again uneasily balanced between two completely different outcomes – and o...

Read
US-China trade war confirms political risk is now a key factor for companies and the economy
12/05/2019

There are few real surprises in life, and President Trump’s decision to launch a full-scale tr...

Read
Uber’s $91bn IPO marks the top for today’s debt-fuelled stock markets
28/04/2019

Uber’s IPO next month is set to effectively “ring the bell” at the top of the post...

Read
The End of “Business as Usual”
21/04/2019

In my interview for Real Vision earlier this month, (where the world’s most successful invest...

Read
Most businesses were nowhere near Ready for Brexit last Friday – we mustn’t make the same mistake again
14/04/2019

Thank goodness for backbench MPs and the European Union. Without their efforts, the UK would by now ...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more