BASF has confirmed it is in discussions with Letter One (L1), a consortium of Russian investors based in Luxembourg and led by Russian billionaire Mikhail Fridman, about a merger of the Ludwigshafen group’s oil and gas activities into DEA, the former oil and gas arm of German utility RWE acquired by L1 in 2014.

The consortium picked up the business for a reported €5.1 billion including debt, outbidding BASF and other interested strategic and financial buyers such as Hungarian energy group MOL.

Talks with L1 are currently in progress, and the outcome is open, BASF said in a brief statement on Nov. 24. The chemical giant declined to comment further other than to say it intends to retain the majority stake in any joint venture founded and that an initial public offering of the jv could be a medium-term option.

The news agency Bloomberg, which first reported the mooted talks, calculated that the combined entity could be valued at up to €11 billion. BASF’s oil and gas subsidiary Wintershall posted sales of €2.8 billion in 2016 and EBITDA of €1.6 billion. Privately owned, DEA does not report comparable figures.

After swapping Wintershall’s trading business with Russia’s Gazprom – a long-term cooperation partner – for stakes in Siberian gas fields, BASF has focused more closely exploration and production in oil and gas-rich regions of Europe, North Africa, South America and the Middle East, in addition to Russia.

Analysts commenting on the potential deal said investors would most likely welcome BASF’s latest move to water down its stake in the increasingly volatile oil and gas sector, which has weighted down its stock market value.

Under current CEO Kurt Bock and his predecessor Jürgen Hambrecht, the German group has steadily chipped away at its image as a raw materials company, successively moving into catalysts, construction chemicals and fine chemicals, along with metal surface treatment. Most recently, it clinched a deal with the newly merged DowDuPont to acquire an agricultural seeds portfolio and agreed to buy Solvay’s polyamide portfolio.  A foray into pharmaceuticals some years ago was short-lived.

Due to Western sanction against Russia, DEA’s expansion in the UK and the US has been slower than expected, reports said – the buy was sealed at the height of the Ukraine crisis. News agencies noted, however, that Letter 1 does not appear on the sanctions list.