Goldman Sachs to Advise Germany's RWE on DEA Sale

Germany's second biggest utility firm RWE has hired Goldman Sachs to advise on the sale of its oil and gas exploration unit DEA, according to media reports.

A week ago, RWE announced that it was divesting its oil and gas exploration unit in order to reduce debt and capital expenditures. The company, which currently has a debt pile of €33bn ($43bn, £29bn), invested about €700m in DEA over the past two years.

DEA, which has operations in 14 countries including Egypt, Norway, Libya and Britain, produced 5.1 million cubic metres in oil equivalents in 2011. Its operating profit was up 23 percent year-on-year to €685m in 2012, constituting 11 percent of RWE's operating profit.

Sources told Reuters that DEA was valued at about €5bn, while analysts valued the firm at €5.8bn on average. The sale will be the biggest ever of the company that has a market value of €17.5bn.

RWE, which is Germany's largest power producer by capacity, has been suffering from declining electricity demand and lower wholesale prices amid the financial crisis in Europe.

German utility companies such as RWE, E.ON and EnBW have been trying to raise cash to invest in renewable energy projects in line with the country's decision to exit nuclear energy by 2022 following the Fukushima disaster in Japan. They are undertaking large asset sale programmes worth about €30bn for the purpose.

RWE's oil and gas production was 30.8 million barrels of oil equivalent in 2012, or 84,300 barrels a day. It expects to increase production to more than 40 million barrels in 2014, or more than 100,000 barrels a day.

As a result of the changes in the country, the group expects its operating profit to "decline significantly" after 2013. After the Fukushima disaster, Germany shut down 17 nuclear plants and pledged to close the rest by 2022.