UPDATE 2-RWE sells oil and gas unit to group led by Russia's Fridman

Sun Mar 16, 2014 3:05pm EDT

* Deal expected to close later this year

* Enterprise value is 5.1 billion euros

* Value includes about 0.6 billion euros of debt

* RWE says sees no opposition from German government (Recasts, adds details on deal, background)

By Christoph Steitz and Tom Käckenhoff

FRANKFURT/DUESSELDORF, Germany, March 16 (Reuters) - G ermany's debt-burdened utility RWE has struck a deal to sell its oil and gas production arm DEA to a group of investors led by Russian tycoon Mikhail Fridman, valuing the unit at about 5.1 billion euros ($7.10 billion) including debt.

Under pressure from a deep and prolonged industry crisis, caused by a surge in rivals' renewable capacity as well as weak energy demand in its core market Europe, RWE has been looking for ways to reduce its debt pile of more than 30 billion euros, including cutting jobs and shedding assets.

The group, which earlier this month revealed its first net loss since 1949, had announced plans to sell DEA about a year ago, aiming to rid itself of large investments needed to keep the unit's exploration business afloat.

"This agreement is a major milestone in delivering our announced strategic realignment of the group," RWE's Chief Executive Peter Terium said in a statement. "In addition, it is a further and essential step towards improving our financial strength."

With operations in 14 countries, DEA employs about 1,400 staff and owns stakes in about 190 oil and gas licenses or concessions in Europe, the Middle East and North Africa, some of which are non-producing and in need of large investments.

It accounted for about nine percent of RWE's operating profit in 2013.

FIRST STRATEGIC STEP

Luxembourg-based investment vehicle LetterOne, set up by Russian billionaire Fridman last year to invest $20 billion or more in global oil and gas projects, said the purchase marked "its first strategic step in entering the oil and gas industry".

The deal comes as East-West relations have hit a new low over a crisis in Crimea, leading German Chancellor Angela Merkel to warn of a "catastrophe" if Russia does not back down on plans on annex the region, which is part of Ukraine.

A spokesman for RWE, Germany's second-biggest utility by market value after E.ON, said the group had informed the German government about the transaction, a standard procedure for deals of this magnitude, and received no indication that Berlin would be opposed to it.

The deal, which includes about 600 million euros in debt, is still subject to the approval of RWE's supervisory board as well as authorities in several countries, RWE said, adding the transaction was expected to close later this year.

Sources told Reuters earlier this month that bidders had begun to submit binding offers for RWE DEA, and named BASF unit Wintershall, and Hungarian oil and gas Group MOL alongside Fridman.

($1 = 0.7181 Euros) (Additional reporting by Marilyn Gerlach and Arno Schuetze in Frankfurt; Editing by Robin Pomeroy and Sophie Walker)