RWE AG (RWE), Germany’s second-largest utility, wants to raise as much as 5 billion euros ($6.5 billion) in its Dea oil unit sale, cash to be used to reduce debt, a person familiar with the matter said.
RWE decided to sell Dea as a whole, a plan announced this week, after failing to divest individual assets including a gas project in Egypt, said the person, who asked not to be identified because the process is private. The company has yet to appoint advisers, he said. It would be RWE’s biggest-ever asset sale.
The sale of Dea, which pumps oil and gas in the U.K., Germany and Norway, will enable RWE to bolster cash as profit margins narrow from slowing energy demand in Europe and the phaseout of nuclear power at home. RWE, joining larger competitor EON SE in cutting costs, abandoned a previous target for disposals after prices fell short.
Peter Hoscheidt, a RWE spokesman, declined to comment on the anticipated sale price.
Raising 5 billion euros would allow RWE to reduce net debt of 33 billion euros. The company has a market value of 17.5 billion euros. Moody’s Investor Services has a negative outlook on the company’s A3 credit rating. Standard & Poor’s cut RWE to BBB+ in July, the third-lowest investment grade rating.
A sale may be stymied by RWE Dea’s Egyptian assets, which were unsold in a disposal process started in 2011, where it aimed to raise $3 billion, people familiar with the process said at the time.
The company is a partner in two offshore licenses operated by BP Plc (BP/) due to start production in 2014. The North African nation remains mired in political unrest after the overthrow of President Hosni Mubarak two years ago.
RWE Dea had oil and gas reserves equivalent to 769 million barrels of crude at the end of 2012, according to the company’s annual report. A 5 billion-euro deal, would value reserves at $8.45 a barrel. Among Europe’s largest oil companies, Royal Dutch Shell Plc (RDSA)’s market value gives an equivalent of $14.81 a barrel, Total SA stands at $7.76 and Italy’s Eni at $9.05.
The utility has completed 2.1 billion euros of its disposal program, previously targeted to reach 7 billion euros by the end of this year, Chief Executive Officer Peter Terium said two days ago when the company announced the sale of Dea. He declined to give a new target or schedule.
The disposal “is not so positive, Dea has been the last growth driver within the RWE group,” Daniel Seidenspinner, an analyst at B. Metzler Seel Sohn & Co. KGaA, said by phone from Frankfurt. He estimates Dea’s value at about 4.5 billion euros.
The company’s oil and gas production was 30.8 million barrels of oil equivalent in 2012, or 84,300 barrels a day. Production is targeted at more than 40 million barrels in 2014, or more than 100,000 barrels a day, according to the Essen-based utility’s annual report.
Dea’s operating result was up 23 percent to 685 million euros from a year earlier, constituting 11 percent of RWE’s operating result.
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