RWE Sale of Egypt Gas Assets Said to Stall Amid Turmoil

A sale by RWE AG (RWE) of energy assets in Egypt is stalled as the country’s turbulent political transition deters potential buyers from bidding for the German utility’s offshore gas fields there, according to people familiar with the situation.

A deal to sell the Egyptian assets is unlikely to be reached this year after early bidders lost interest, the people said, asking not to be identified as the discussions are private. RWE is moving ahead with asset sales in Norway after appointing Deutsche Bank AG last year to weigh options for the future of Dea, its oil and gas exploration and production unit, they said. The Egyptian fields may be valued at as much as $3 billion, people with knowledge of the process said last year.

More than a year after the ouster of former president Hosni Mubarak, clashes between the military-appointed government and the legislature have shown Egypt remains unstable. This week, Egypt’s highest court issued twin rulings dissolving parliament and clearing the way for Ahmed Shafik, Mubarak’s last prime minister, to run for the presidency. The country still has no constitution in place, and economic growth is the lowest in decades, slowing to 0.4 percent in the final quarter of 2011, compared with 5.6 percent a year earlier, as instability deterred tourists and investors.

A spokeswoman for RWE declined to comment on the process.

Gas Diversions

In addition to broader political developments, Egyptian Natural Gas Holding Co., the state natural gas utility, has said it will temporarily divert some gas produced in Egypt for domestic uses to meet supply shortages instead of allowing it to be exported.

RWE is raising as much as 11 billion euros ($14 billion) to reduce debt and finance new projects after Chancellor Angela Merkel ordered German utilities to close their nuclear plants by 2022 in the wake of the Fukushima nuclear accident in Japan. Rival EON AG (EOAN) is cutting jobs, and last month shored up its financial position by selling Open Grid Europe, Germany’s biggest gas distribution system, to funds led by Macquarie Group Ltd. for 3.2 billion euros.

The utilities are seeking about 15 billion euros in damages from the German government over the forced exit from nuclear power, the Frankfurter Allgemeine Zeitung reported this week, citing court filings.

Locked In

Both companies are also locked into oil-indexed gas contracts with producers such as OAO Gazprom, Russia’s state gas export monopoly, that require them to take gas at prices higher than they can re-sell it on the retail market, hurting their earning power.

Before seeking buyers, RWE Dea had planned to commit $3.6 billion to develop gas fields in the Mediterranean off Egypt’s Nile Delta, a sum that would have been the company’s biggest single investment in oil and gas production, according to the company’s 2010 annual report.

RWE sites in Norway and the North Sea that may be targeted for disposal have, by contrast, attracted interest from Wintershall AG, the oil and gas production unit of German chemical producer BASF SE (BAS), people familiar with the situation said in May.

Source: Bloomberg Businessweek


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