* RWE may face problems selling unit as a whole - bankers
* Egypt assets seen as problematic to unload
* Potential bidders need time to study country risk -bankers
By Christoph Steitz and Arno Schuetze
FRANKFURT, July 19 German utility RWE AG
faces a tough choice in its efforts to sell oil and
gas unit DEA - hold out for a single buyer, or offload it in
The first option appeals as RWE pursues a disposal designed
to help it slash capital spending, raise an estimated 5 billion
euros ($6.6 billion) and cut net debt which stood at 33.2
billion euros at the end of March.
Yet seeking a sale in one go could drag out the process and
a piecemeal approach could generate quicker returns. The risk?
That RWE could be left holding unwanted assets, even its Hamburg
With operations in 14 countries including Germany, Britain,
Norway and Egypt, DEA employs nearly 1,400 staff and accounted
for about 23 percent of RWE's operating profit in 2012.
RWE, whose power plants supply millions of Germans with
electricity, has said it would prefer to sell the unit in one
go. But its structure is complex and its assets are of
"extremely diverse" quality, bankers familiar with the deal
DEA owns stakes in about 190 oil and gas licenses or
concessions in Europe, the Middle East and Northern Africa, some
of which are non-producing and in need of large investments.
Some investors will focus on the producing assets of DEA,
while others see the best chance of making money by developing
oil and gas fields themselves, the bankers said.
"The truth is that RWE can really only sell it in slices,"
one of the bankers said. Another banker said a sale in one go
may be possible, but would require allowing a lot of time for
investors to group into bidding consortiums.
RWE, which sources said has hired Goldman Sachs Group Inc
to manage the sale, last month said it had not yet asked
"There are likely to be concerns on the speed of the
disposal process at DEA, and the fact that some assets ... have
been difficult to sell," Morgan Stanley analysts said.
Hard-to-shift assets may include some of the company's
operations in Egypt, where DEA produced about 12 percent of its
oil and gas in 2012.
HSBC estimates DEA's so-called 2P reserves in Egypt, defined
as proven plus probable reserves, stand at 816 million barrels
of oil equivalent, about 60 percent of the group total.
But bankers close to the sale process have pointed to
Egypt's political crisis, as well as large investment
commitments by DEA, as reasons for demand for its assets there
"RWE will need to spend a lot of time staying in contact
with potential investors and making them feel comfortable with
investments in these countries," a sector banker said.
RWE DEA is investing $3.6 billion in field development of
its North Alexandria and West Mediterranean Deep Water
concessions, which it jointly owns with BP Plc.
"No-one wants to take over these commitments," one banker
said, adding that the need to spend money on these projects was
putting pressure on DEA's valuation.
Based on a 5 billion euros valuation, DEA would be priced at
an EV/EBITDA multiple of 4.8 times, a discount to the 6.2 times
average for European oil and gas exploration and production
(E&P) companies, according to StarMine.
RWE could be more successful in selling its European assets
than those in North Africa.
JP Morgan estimates that DEA's European assets are likely to
"draw good interest from potential buyers", mainly due to their
stable production and limited exploration costs.
DEA produced more than half of its total 2012 oil and gas
output in Germany, while Norway accounted for more than a
quarter. According to HSBC, DEA's German and Norwegian
operations are valued at a combined $3.5 billion, just over half
of the group total.
FINDING A BUYER
One obvious suitor for parts of DEA would be BASF AG's
gas and oil arm Wintershall, which in March said it
was looking at DEA, making it the only company so far to
publicly express interest.
While bankers do not expect the likes of BP, Total SA
or Eni SpA to play a big role in the auction,
DEA could attract energy-focused private equity firms such as
Riverstone, Encap, NGP, First Reserve, EIG - or even
For example, Australian Industry Funds Management is
shopping around for European energy assets, sources familiar
with the investor said.
Some bidding consortiums for DEA may involve money from
Russian oligarchs or Middle East investors. Sources familiar
with the deal have already mentioned Qatar, the world's biggest
liquefied gas producer, as holding initial talks with RWE about
More may follow, including companies such as Kufpec, a
subsidiary of state-run Kuwait Petroleum Corp, which "have
explicit mandates to acquire reserves and producing assets in
the region," John Musk, analyst at RBC Capital Markets, wrote in
a recent note.
Given the wide range of possible bidders and the complexity
of the asset, bankers do not expect a fast, tightly-organised
deal, in line with the company's guidance that it expects to
sell the asset next year.
"Some of the bidders do not have Western-style
decision-making processes," one banker said. "And you even have
to consider aspects like slowdown of business activities during