The Urethane Blog

BASF Impacted by Low Oil

BASF profit down 76%, squeezed by oil slump

Published: Feb 26, 2016 4:10 a.m. ET



LUDWIGSHAFEN, Germany–German chemicals company BASF SE posted a 76% decline in fourth-quarter net profit, squeezed by low earnings at its oil and gas and basic chemicals divisions, and said it expects reduced sales and profitability in the current year.

The world's largest chemicals company said net profit for the period ended Dec. 31 fell to EUR339 million ($373.96 million) from EUR1.42 billion a year earlier. Low global oil and gas prices dragged down earnings at BASF's wholly-owned oil and gas subsidiary, Wintershall AG, and lower margins in the petrochemicals division held back growth at its basic chemicals unit.

For 2016, BASF said it expects earnings before interest and taxes and before special items to be "slightly below" the 2015 level of EUR6.74 billion. It also expects a "significant decrease" in earnings at the oil and gas division.

"This is an ambitious goal in the current volatile and challenging environment, and is particularly dependent on the development of the oil price," Chief Executive Kurt Bock said, of the earnings guidance for 2016.

The company said its guidance is predicated on the average price of Brent crude oil–the global benchmark–at $40 a barrel.

That figure implies that the price of oil will increase significantly above $40 a barrel by the end of the year, noted Peter Spengler, an analyst at Germany's DZ Bank. "Therefore, a downward correction of the guidance cannot be ruled out entirely," he said.

BASF also said sales will decline "considerably" in the current year, largely as the result of its divestiture of its gas trading and storage business through an asset swap with Russia's Gazprom last year.

The results come nearly a month after BASF pre-released some figures for 2015. The company then said it had taken EUR600 million in impairment charges at Wintershall in the fourth quarter, a result of significantly lower global oil and gas prices in the last months of 2015.

The charges at its wholly-owned subsidiary Wintershall AG caused the unit to post a quarterly loss for earnings before interest and taxes of EUR437 million. The impairment also drove an 18% decline in annual group EBIT in 2015, to EUR6.2 billion.

Prices for oil and gas have plummeted further in recent months, with crude falling briefly below $30 a barrel, and remain under pressure amid anxiety over an expanding global gut.

Fourth-quarter EBIT at the basic chemicals division, which produces petrochemicals and monomers, fell 65% to EUR226 million, a result of the weaker petrochemical margins.

However, BASF's specialty chemicals divisions fared better, with the Functional Solutions and Materials division–whose products include construction chemicals, coatings and performance products–posting EBIT more than double that of that same period last year, at EUR366 million.

The agrochemical division also saw growth, with EBIT rising 13.9% to EUR139 million, helped by its herbicides business in North America.

BASF said it plans to propose an increased shareholder dividend of EUR2.90 for 2015, up from EUR2.80 a year earlier.