By Neetha Mahadevan 

FRANKFURT--An energy-industry asset swap between German conglomerate BASF SE and Russian energy giant OAO Gazprom that appeared dead last year due to strained relations between Europe and Russia is back on, the companies said Friday.

The surprise U-turn underscores the challenge multinationals face navigating the standoff between Russia and the West over separatist violence in Ukraine.

The U.S. and Europe Union have imposed sanctions on conducting business with allies of Russian President Vladimir Putin and Russian state-backed companies. But the German-Russian deal's resurrection suggests that Russia may still yield fertile ground for Western multinationals that are able to maneuver around sanctions and balance political considerations against business interests.

Neither company said what prompted the reversal now.

They first announced the asset swap in December 2013 and it was approved by the European Commission, the EU's executive arm. But they shelved it last year amid rising political tension.

"Due to the difficult political environment, BASF and Gazprom had decided not to complete the asset swap planned for the end of the 2014," BASF said. "We did not exclude completing the asset swap at a later date and came to the joint decision to now complete the transaction," it said.

A Gazprom spokesperson wasn't immediately available to comment.

The deal will bolster Gazprom's business in Europe, where it has faced increasing competition and regulatory pressure while giving Wintershall AG, wholly owned by BASF, a chance to expand its natural gas production through access to gas fields in Siberia.

As previously planned, the deal will see oil and gas firm Wintershall hand over to Gazprom a jointly run gas storage and trading business, Wingas GmbH, which generated more than $12 billion in revenue last year.

The swap also gives Gazprom a 50% share in Wintershall's Nordzee B.V. business which produces oil and gas in the southern stretches of the North Sea.

In return, Wintershall will receive a 25.01% share in the development of Urengoy gas fields in western Siberia, which contain around 274 billion cubic meters of gas, Interfax reported.

"We look forward to further expanding the joint production of natural gas and condensate with our partner Gazprom in western Siberia," BASF Chief Executive Kurt Bock said.

Germany's lobbying group for business with Eastern Europe touted the deal's prospect for bridging differences with Russia.

"We hope that the joint economic projects convey a political rapprochement and raise hopes of creating improved framework for cooperation," said Eckhard Cordes, who heads the group, Ostauschuss.

A spokesman for German Foreign Minister Frank-Walter Steinmeier was cooler, saying the deal could signal a thaw "but it is more appropriate to take a skeptical approach on the matter."

Shortly after the asset swap fell apart last year, Wintershall sold Gazprom its 15% share in Gazprom's South Stream pipeline project for an undisclosed sum. The project was to be used to supply natural gas from Russia to Europe through Bulgaria. Mr. Putin scrapped the project because of growing opposition from European leaders. BASF continued other joint ventures in Europe and Russia.

The renewed deal is expected to be concluded by the end of the year.

Heide Oberhauser-Aslan

in Frankfurt,

Thomas Grove

in Moscow and

Christian Grimm

in Berlin contributed to this article.

Write to Neetha Mahadevan at neetha.mahadevan@wsj.com

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(END) Dow Jones Newswires

September 04, 2015 08:53 ET (12:53 GMT)