DEALTALK-RWE DEA assets face hard sell

Tue May 22, 2012 8:00am BST

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* RWE has hired Deutsche Bank for the sale-source

* Sale of assets could fetch up to 1.25 bln eur-analysts

* RWE expected to sell assets in North Africa, North Sea

By Christoph Steitz and Arno Schuetze

FRANKFURT, May 22 (Reuters) - RWE's (RWEG.DE) sale of assets from its oil and gas exploration unit DEA may prove complicated but could fetch up to 1.25 billion euros ($1.6 billion) and ease the pain of a fast-track nuclear exit by Germany's No.2 utility.

RWE is giving high priority to its DEA disposals as part of a wider streamlining programme that also includes Czech gas transmission system NET4Gas, RWE's stake in water utility Berlinwasser and selected plant capacities.

Like peers E.ON (EONGn.DE) and EnBW (EBKG.DE), RWE has been hit hard by the German government's decision to ditch nuclear power, prompting it to shed assets worth 7 billion euros and tap new growth areas such as renewable power.

RWE has hired Deutsche Bank to manage the sale, a source close to the transaction said.

But the group has not specified exactly which parts of DEA it will divest, saying only they would be assets that will not deliver returns in the short term. [ID:nL6E8FJ7V6]

Bankers and analysts expect stakes in oil and gas sites in North Africa and the North Sea, some of which will not start production before 2014-2016, to be put on the block.

"There will be auctions," a source close to RWE said, adding the first assets to be put on the block will likely be in Egypt and Norway.

Analysts at Morgan Stanley estimate DEA's non-producing assets in Egypt, Libya and Norway are worth 1.25 billion euros, compared with the total enterprise value of DEA of 5.51 billion euros, while Nomura puts their worth at 1.1 billion euros.

Initially, RWE aimed to sell the whole DEA unit but investors criticised the divestment of major earnings contributors, leading the company to trim the programme. [ID:nL5E8E605I]

DEA accounted for almost 10 percent of RWE's operating profit in 2011.

BIG GROUP INTEREST

Big European energy groups like Total (TOTF.PA), GDF Suez (GSZ.PA), ENI (ENI.MI) and Repsol (REP.MC) are likely to take a look at assets in Egypt, Libya and Algeria as they are keen to expand their upstream assets following the Arab Spring, advisers in this field said.

"The proximity to their core European markets makes North Africa interesting," one advisor said, adding they wanted to get in the good books with any new governments ahead of potential competitors from Europe and North America.

Separately, local players like Egyptian General Petroleum Corp and Egypt Oil & Gas may express interest given that the country has a chronic energy shortage and a fast growing population, an industry source said.

A utilities banker cautioned against setting hopes too high.

"The fact that no immediate cash flows can be expected makes this a hard sell, especially given that the political environment may not be stable yet," the banker said.

Existing partners rather than big oil will likely express interest, said WestLB analyst Peter Wirtz. "I expect smaller companies and consortium partners to be the primary parties to talk to," he said.

In the Reggane North prospect in Algeria, RWE partners with Repsol, Italy's Edison EDN.MI and Algerian group Sonatrach. According to RWE, it is expected to start production at the end of 2015.

NORTH SEA

Separately, RWE holds assets in the Norwegian and British North Sea, and is likely to put its 20 percent interest in the Norwegian Luno field on the divestment list, company and industry sources said. [ID:nL5E8GLBBW]

Swedish oil exploration firm Lundin Petroleum (LUPE.ST) owns 50 percent of Luno, and Wintershall - the oil and gas arm of chemicals group BASF (BASFn.DE) - 30 percent.

According to the Norwegian Petroleum Directorate the Luno owners will have to come up with 24 billion crowns ($4 bln) worth of investment to get production going by 2015, money that RWE does not have to spare given its 30 billion euro debt pile at the end of 2011.

Industry experts do not expect the leading players to scoop up the Luno stake.

Norwegian energy group Statoil (STL.OL) was unlikely to seek a minority interest, while Lundin, which is expecting heavy investments elsewhere, had initially owned 100 percent of Luno and later sold half, analysts said.

Wintershall declined to comment on the issue, adding the group would look into opportunities if any came up.

"The buyer won’t be a big player. It’ll be a relatively small, low risk, low reward seeker," said a sector analyst who declined to be named.

In the UK North Sea, RWE has five blocks under development, of which the Kepler and Orca blocks are the least advanced and could end up at the top of a potential divestment list.

"The North Sea assets will likely also attract independent U.K.-based operators," a utilities banker said.

RWE is facing a cost increase on the first phase of its Breagh gas platform in the North sea of up to 5 percent and production from the field may be delayed by three months to the fourth quarter, its partner said on Monday. [ID:nL5E8GLBBW]

RWE and Deutsche Bank declined to comment. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ NALYSIS on German utilities [ID:nL6E8CC5Z6] ANALYSIS on RWE's advantage over E.ON [ID:nL5E8D88BP] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

(Reporting by Christoph Steitz, Arno Schuetze, Jonathan Gould, Henning Gloystein, Balazs Koranyi, Karolin Schaps, Vera Eckert, Tom Käckenhoff; Editing by David Cowell)

((christoph.steitz@thomsonreuters.com)(+49 69 7565 1269)(Reuters Messaging: christoph.steitz.thomsonreuters.com@reuters.net)) Keywords: RWE/DEA

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