Confirming reports circulating earlier in the day that a deal was imminent, BASF announced on Dec. 7 that it had signed a letter of intent with LetterOne (L1) to merge its oil and gas subsidiary Wintershall with DEA, the gas producer owned by the Luxembourg-based consortium of Russian investors based in Luxembourg and led by Russian billionaire Mikhail Fridman.

By combining their oil and gas assets, the German chemical group said Wintershall DEA would have significant growth potential and be one of the largest independent European exploration and production companies. In the medium term, the joint owners hope to unload their shares through an initial public offering.

Over the coming months, BASF and LetterOne plan to prepare and conduct a “confirmatory due diligence” and negotiate definitive transaction agreements. Closing could be expected in the second half of 2018, subject to the usual regulatory approvals.

Until the closing, the two companies will continue to operate separately. Earlier, BASF said it would hold the majority of the joint undertaking, which according to the latest estimates could be worth as much as €14 billion. According to the most recent calculation, it could control about two-thirds of the new oil and gas giant.

The consortium acquired the DEA business from German energy group RWE for a reported €5.1 billion in 2014.