German utility RWE has said it will sell its oil and gas unit DEA to investment fund LetterOne. The Luxembourg-based fund is owned by a Russian oligarch, but RWE says it doesn’t expect Berlin to object to the deal.
RWE and investment fund LetterOne had agreed on the terms for the sale of DEA, and will clarify major contractual conditions shortly, the German energy utility announced in a brief statement released Sunday.
In the agreement, the value of RWE's oil and gas exploration and production unit was set at 5.1 billion euros ($7.1 billion), including DEA debt to the tune of 0.6 billion euros, RWE said.
"The agreement is an important milestone in the strategic development of RWE and an important step toward strengthening the financial base of the utility," RWE Chief Executive Peter Terium said.
DEA has about 1,400 employees, most of them based in the company's headquarters in Hamburg, Germany. The firm owns about 190 oil and gas exploration rights in Europe, the Middle East and North Africa, and contributed about 10 percent to RWE's operating profit last year.
LetterOne is based in Luxembourg and owned by Russian billionaire oligarch Mikhail Fridman. In 2013, the investment group launched its L1 Energy Fund, which has since pumped about $20 billion into global oil and gas projects. The fund plans to expand its business in the sector over the next few years.
In view of sanctions likely to be stiffened against Russia in the course of the Ukraine crisis, doubts have surfaced about the deal to receive regulatory approval in Germany and elsewhere.
RWE CEO Terium, however, said he didn't expect difficulties for the deal, which he hoped to complete by the end of the year.
"We have very early informed the government about the planned transaction and there was no sign, whatsoever, that it would object to it," Terium noted.
For RWE the deal is crucial to improve its capital base after reporting a loss of 2.8 billion euros in 2013. Germany's second largest energy group is suffering heavily from a government-supported switch to renewable forms of energy which has rendered RWE's gas and coal-fired power plants increasingly unprofitable.
uhe/kms (AP, Reuters, dpa)