East Germany’s Oil Rush Seen Yielding $27 Billion Windfall

Oil production in eastern Germany may provide the region with a 20.3 billion-euro ($27 billion) windfall during the next 25 years, according to a company with drilling concessions there.

“This is one of the biggest onshore oil complexes in Europe,” Thomas Schroeter, managing director of Berlin-based Central European Petroleum GmbH, said in an interview. “It’s not the Persian Gulf but it’s a big deal for Europe.”

Two-thirds of the windfall would come from Mecklenburg-Western Pomerania state, where Chancellor Angela Merkel’s election district is located, and the rest from Brandenburg’s Lower Lusatia region. Both are among Germany’s poorest states.

Brandenburg expects to approve oil production by 2017, Ralf Christoffers, the state’s economy minister, said today in an interview in Potsdam. Central European Petroleum, or CEP, may begin pumping “small” amounts of oil that year before increasing production, Schroeter said.

CEP, which says it has spent 80 million euros searching for oil in Germany, is using new drilling techniques to breathe life into an industry exploited in the East Bloc era. Oil production in eastern Germany dates back to the 1960s when the Soviet Union ordered its communist satellite to search for hydrocarbons.

Brandenburg Reserves

Lower Lusatia, about 100 kilometers (60 miles) southeast of Berlin, may have as many as 740 million barrels of oil in place in CEP concessions, the company said today at a press conference in Potsdam. The area’s projected 6.8 billion-euro windfall, or proceeds from drilling rigs, operating costs, royalties and taxes, is based on an extraction rate of 15 percent.

“Oil has been produced in Brandenburg for the last 50 years,” Schroeter said. “We know oil is here -- it’s not about finding oil.”

In Brandenburg and Mecklenburg-Western Pomerania, CEP has eight exploration licenses covering more than 3.6 million acres, according to company data reported last month.

While Brandenburg expects to approve production within about four years, no timetable for a decision has been given by Mecklenburg-Western Pomerania. Merkel’s spokesman last month declined to comment when asked if the chancellor backs oil output in her district. Merkel, who also has a weekend home in Brandenburg, is running for a third term in Sept. 22 elections.

Striking Oil

CEP, a German-Canadian venture backed by Goldman Sachs Group Inc., has drilled four test wells and found oil in all of them, according to Schroeter, a 56-year-old geologist who has worked on oil projects in Texas, Libya, Kuwait and Venezuela. The crude -- light, sweet and low-sulfur -- is extractable by conventional means and not by hydraulic fracturing, or fracking, according to the company.

The windfall in Mecklenburg-Western Pomerania would amount to 13.5 billion euros, according to CEP. Its best-case scenario of about 500 million euros a year represents about 7 percent of the northeastern state’s budget.

The state’s seasonally unadjusted jobless rate was 10.8 percent in June and Brandenburg had 9.5 percent unemployment, compared with a national rate of 6.6 percent, according to Federal Labor Agency data.

Roland Leithaeuser, a spokesman for Goldman Sachs AG in Frankfurt, said that the bank is an investor in CEP, declining to comment further.

Before it's here, it's on the Bloomberg Terminal.