DUBAI/FRANKFURT U.S. private equity firm KKR (KKR.N) has teamed up with the international arm of Kuwait Petroleum Corp to jointly bid for German utility RWE's (RWEG.DE) oil and gas unit DEA RWEDE.UL, four banking sources familiar with the matter said.
RWE, suffering from loss-making power plants, a boom in renewable power and 35 billion euros ($47.2 billion) in net debt, said in March it planned to sell DEA to save billions of euros it would otherwise have to invest in exploration and production.
Kuwait Foreign Petroleum Exploration Co (Kufpec), which is scouting for overseas acquisitions to beef up its energy portfolio, is joining hands with KKR to bid for the unit, potentially worth up to 5 billion euros, the sources said, speaking on condition of anonymity as the matter is not public.
"It's a pretty large asset and it makes sense for a private equity to team up with a strategic (partner). They are currently in active discussions with banks to appoint an adviser," one Middle East-based banking source said.
KKR declined to comment, while Kufpec was not immediately available for comment. RWE also declined to comment.
With operations in 14 countries including Germany, Britain, Norway and Egypt, DEA employs nearly 1,400 staff and accounted for about 11 percent of RWE's operating profit in 2012.
It has 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.
Sources told Reuters last month that RWE was asking bidders to submit offers for DEA by late December.
The sources said KKR and Blackstone (BX.N) were likely to submit bids. BASF's (BASFn.DE) Wintershall and Britain's Centrica (CNA.L) are also seen as potential bidders.
Kufpec has been eyeing international acquisitions in recent months to bolster its portfolio of energy assets. In May, it bought the Norwegian operations of Japan's AOC Holdings' upstream unit, Arabian Oil Co.
The state-owned firm also bought BP's 34.3 percent stake in the Yacheng gas field in the South China Sea late last year for $308 million.
Separately, Kufpec was said to be bidding for Newfield Exploration Co's (NFX.N) Malaysian and Chinese oil and gas fields earlier this year.
DEA's Egyptian assets could be a sticking point in any sale, given the substantial investments needed there and the unstable political situation in the country.
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 (BP.L).
Kuwait, along with its Gulf neighbors Saudi Arabia and the United Arab Emirates, has pumped in billions of dollars into Egypt recently to help revive the North African country's economy after the Egyptian army overthrew Islamist President Mohamed Mursi on July 3.
The Gulf state's relationship with the North African country has also been good of late, which may help explain Kufpec's interest in DEA's Egyptian assets, which accounted for about 12 percent of DEA's oil and gas in 2012.
"When you are bidding for such a business, you need someone familiar with the country and comfortable on the long-term prospects there. Clearly, the Kuwaitis have a robust relationship in the country and understanding of that market currently," one of the sources said.
By contrast, Qatar Petroleum International's (QPI) interest in the DEA has cooled off as Qatar had backed overthrown President Mursi. ($1 = 0.7421 euros)
(Additional reporting by Christoph Steitz; Editing by Noah Barkin)